Occupational rent explained

Regardless of whether someone is on the selling or buying end of a property transaction, it is imperative that they are familiar with all the conditions that the offer to purchase stipulates, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.

According to South African legislation, those who would like to either sell or buy a property are required by law to reduce all contractual agreements to writing. Goslett says that the aim of this is to reduce the risk of any ambiguity during the transaction and to have a clear guideline as to what each party is entitled to and what they are responsible for.  “Since the Consumer Protection Act was signed into law in 2011, contractual language has become easier to comprehend. However, that said, it is still vital that both the buyer and seller go through the offer to purchase and agree with all conditions and provisions mentioned in the contract before they sign it, especially when it deals with aspects such as occupational rent,” advises Goslett.  

He adds that the clause relating to occupational rent is vital as it protects both parties in the contract. Essentially what the clause does is ensure that the seller will be financially compensated if the purchaser moves into the home before the transfers occurs. Equally, it will also provide financial compensation if the transfer takes place and the seller is still occupying the property. 

Goslett says that the occupational clause in a sales agreement is often overlooked because the majority of buyers only plan to move into the home once transfer has happened. In most instances buyers want to avoid having to pay occupational rent and therefore wait for the property to be registered in their name before taking occupation. “However,” says Goslett, “sometimes life doesn’t always go according to plan and the buyer might find themselves in circumstances that force them to move into the property sooner than anticipated. Buyers will often have to give notice at their current residence before moving to their new home. If notice is given and the transfer of the property is delayed, they could find themselves occupying their new home while it is still owned by the previous owners.  In an instance such as this knowing what the contract says about occupational rent will become of paramount importance.”

According to Goslett, it is not only the buyer that could find themselves paying occupational rent. If the seller has sold their current property to purchase another and are waiting for the transfer to go through, they could end up staying in their current residence longer than expected. This would mean that they could end up paying occupational rent to the new owners of the property.  Although these situations are not ideal, it is in these instances that knowing and understanding the terms of the occupational rent clause that will allow the parties involved to know what is expected and not be caught unaware.  

Goslett says that in the event of either possibility happening, it is imperative that the occupational clause in the sales agreement states the amount of occupational rent that should be paid. Even if the date of occupation is listed as the date of transfer, the occupational rent amount should still be put into the agreement in writing.  This will ensure that conflict or any misunderstandings are avoided. “While the rental amount is ultimately the seller’s decision, both parties will need to decide and agree upon the occupational rent amount prior to them signing any agreement. The rental amount should be market related and should ideally be enough to cover the bond repayment,” says Goslett.

He concludes by saying that by understanding the sales agreement and its conditions, buyers and sellers can avoid any unnecessary conflict, which will make the entire process of buying or selling a home a far less daunting one.