Q: We are buying our first home. The contract of purchase and sale refers to an adjustment date. What items are “adjusted” on closing?
A: The adjustments on the purchase and sale of real estate vary, depending on the type of property. For all properties there will be an adjustment of taxes and municipal utilities. If the yearly taxes and utilities have been paid, the buyer will reimburse the seller for the buyer’s share for the calendar year. In BC, taxes are fully payable by July of each year and cover from January 1 to December 31. If the adjustment date is December 1 the buyer will reimburse the seller for one month of the tax bill.
For strata titled properties there will be an adjustment for monthly strata fees. If the adjustment date is the middle of the month then the buyer will reimburse the seller for one half of the monthly strata fee.
For smaller strata developments such as a strata duplex there will be an adjustment for the master insurance policy on the building as the insurance is paid annually as a lump sum. The adjustment will therefor depend on when the insurance was paid. For larger strata developments the owners pay for the insurance through their monthly strata fee so there is no additional adjustment.
If the property has a tenant who will be occupying the property on the adjustment date then the buyer will receive a credit for a portion of the rent. The buyer will also receive a credit for the damage deposit.
These are the major items to be adjusted on the purchase and sale of real estate in British Columbia. There may be some unique circumstances for a property so be sure to discuss adjustments with your professional advisers. Adjustments will be handled through “debits” and “credits” on the statement of adjustment prepared by your lawyer or notary public.
