Most property settlements in Western Australia proceed smoothly, but every now and then, a delay occurs. When that happens, buyers and sellers are often surprised to learn that penalty interest may apply. At Mosaic Settlements, we know that penalty interest can feel confusing or even stressful, especially if you have not encountered it before, so let’s take a clear and practical look at how it works.
What is penalty interest?
Penalty interest is a form of compensation. It applies when one party causes a delay in settlement and the other party experiences financial disadvantage as a result. Rather than relying on guesswork or negotiation, the right to charge penalty interest is already built into the standard Joint Form of General Conditions, which governs most property contracts in WA.
In simple terms:
- Each party must to settle by the contractual due date or within the three business days grace period which follows this due date
- If the buyer delays settlement for a reason that is their responsibility, they may need to pay penalty interest to the seller
- If the seller is responsible for the delay, the buyer is entitled to a credit at settlement for the penalty interest amount
This interest is calculated on the balance of the purchase price and any other funds due at settlement, charged at 9%p.a. per day from the original settlement date until the day before settlement is completed, including weekends and public holidays.
When is penalty interest paid?
Penalty interest is settled at the time of settlement. If there is disagreement about the amount, the settlement should still proceed. The disputed amount can be held safely in trust while the parties resolve the issue. This is important because delaying settlement further can increase costs and create additional complications for everyone involved.
What this means for buyers and sellers
The key to avoiding unexpected penalty interest is preparation. Make sure your finance, documents, identification, and required inspections are all organised well ahead of settlement day. If something is causing a delay, communicate early. Most problems are far easier to solve when addressed promptly.
At Mosaic Settlements, we guide our clients through timelines, requirements, and next steps so you always know what to expect and how to stay on track. If a delay does occur, we will help you understand your position clearly and support you through the process.
Need advice?
If you have questions about penalty interest or settlement timing, our team is here to help. Feel free to contact us for clear guidance and practical support tailored to your situation.
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