Unpaid Rates or Land Tax Discovered at Settlement

When a residential or commercial property changes hands, the outgoing owner's council rates, water rates and sometimes land tax are adjusted between buyer and seller as part of the settlement figures. Occasionally, a certificate ordered close to settlement reveals an amount owing that nobody expected: rates in arrears, a land tax assessment the seller had not disclosed, or a certificate that has expired and needs updating. This is rarely a sign of anything sinister, but it can hold up settlement or leave one party out of pocket if it is not handled correctly.

How Rate and Land Tax Adjustments Normally Work

In a standard residential purchase, the seller pays council rates, water rates and, where applicable, land tax up to the settlement date, and the buyer takes over responsibility from that date onward. Your conveyancer calculates this adjustment using current certificates ordered directly from the council, water authority and state revenue office, then builds the figure into the final settlement statement. Because these certificates have a limited period of validity, they are usually ordered again close to settlement so the figures stay accurate, particularly if settlement is delayed or extended.

Why Unpaid Amounts Get Missed

Arrears usually surface because a certificate was ordered too early and has since gone out of date, because the seller has other outstanding notices that were not identified when the contract was prepared, or because the amount relates to a supplementary or amended assessment issued after the original search. In some cases the seller genuinely was not aware of the debt, for example where a rates notice was sent to an old address. Whatever the reason, an unpaid amount discovered late needs to be resolved before, or as part of, settlement, not afterwards.

Where Land Tax Adds a Layer of Complexity

Land tax is usually assessed against an owner rather than a single property, and the calculation can depend on the total value of all land the seller holds in that state, not just the property being sold. This means the amount attributable to any one property is not always obvious from a simple certificate, and unpaid land tax can, in some states, attach to the land itself rather than remaining a personal debt of the seller. Revenue NSW's guidance on land tax clearance certificates explains this clearly for New South Wales, and similar clearance processes exist in other states through their own revenue offices. This is general information only, not tax advice, and anyone with a specific land tax question should speak with their accountant as well as their conveyancer.

What Happens If Arrears Are Found Close to Settlement

If a certificate is updated shortly before settlement and shows an unpaid balance, the usual fix is to adjust the settlement figures so the amount is paid out of the seller's proceeds at settlement, rather than left for the buyer to chase afterwards. Your conveyancer will contact the seller's representative to confirm the figure, request a revised certificate if needed, and amend the settlement statement accordingly. This is a routine administrative step in most cases and does not need to delay settlement if it is picked up early enough.

When a Retention or Delay Becomes Necessary

Occasionally the exact amount owing cannot be confirmed in time, for example where a dispute exists between the seller and the council over the assessment. In that situation, conveyancers commonly arrange for an amount to be retained from the seller's proceeds at settlement, held until the correct figure is confirmed, rather than settling on an uncertain number. A short delay to settlement is sometimes the more practical option if the certificate itself cannot be obtained in time, and this is negotiated formally between the parties' conveyancers rather than left as an informal understanding.

Special Considerations for Investors and Multiple Properties

Investors who own several properties in the same state face a more involved calculation, because land tax is often assessed on the combined value of everything they hold, then apportioned back across each property. Selling one property in a larger portfolio does not automatically clear that property's share of land tax, and the seller's overall land tax position can shift again the following year depending on what remains in their name. Buyers of investment property, and their conveyancers, should treat land tax certificates as an ongoing part of due diligence rather than a box to tick once and forget, particularly where settlement is delayed across a new land tax year.

Practical Options for Buyers and Sellers

As a buyer, the main protection is making sure your conveyancer orders rate and land tax certificates close enough to settlement that the figures are current, and querying anything unusual before you settle. As a seller, keeping your rates and land tax up to date, and telling your conveyancer about any notices you have received, avoids last-minute surprises and protects your sale proceeds from unexpected deductions. If you are managing a property transfer between family members rather than an arm's length sale, the same adjustment principles still apply and should not be skipped just because the transaction feels informal. In every case, keep copies of rate notices and any correspondence with council or the state revenue office, since these are the documents your conveyancer will need if a figure is disputed.

How a Conveyancer Manages This for You

A conveyancer who orders searches at the right time, checks certificate currency before finalising figures, and communicates clearly with the other side when something does not add up is your main safeguard here. This applies whether you are buying in New South Wales, Victoria or elsewhere, since every state has its own certificate process and timing rules. Settlement adjustments are now largely handled through electronic settlement platforms, which reduce the chance of a figure being missed altogether, as outlined in PEXA's service charter.