What is occupational rent and early occupation?
Article Provided by Leanne Jooste, B Law Inc. Attorneys
Occupational rent is the term used for when a property is being rented during the property transfer process for a certain period. Either the seller is paying occupational rent for the property that he has now sold, or the purchaser is paying occupational rent for the property that he has bought but does not own as yet.
An occupational rent clause is included in the Offer to Purchase or in an Addendum thereto, if applicable. The wording of the occupational rent clause is extremely important in order to avoid any unnecessary disputes between the parties.
The person responsible for the occupational rent is the person that is allowed to move in prior to the property transfer process or the person that continues to stay in the property after the registration process has been completed.
Such a person is responsible to pay the occupational rent, as well as the water and electricity. Rates and taxes and levies are for the account of the current owner during that period. The amount payable for occupational rent must be stipulated in the offer to purchase contract and should be based on the ordinary rental amount that could reasonably be charged for the property.
No alterations can be done to the property until the transfer process has been completed unless agreed to in writing and all parties understand the risk thereof. It is very important that an entry inspection is done prior to the purchaser taking early possession of the property and that the seller has signed the disclosure form when signing the mandate with the estate agent and is set out in the offer to purchase.
Benefits:
- For the seller, it can help with the ongoing bond payments and upkeep of the property, for which he or she is responsible until the date of transfer.
- For the buyer, it can remove the need to pay rent elsewhere or, in some situations, to have to move twice.
Disadvantages
- The purchaser may not pay occupational rental;
- The purchaser may make structural changes to the property without your permission;
- The purchaser may find a defect and refuse to proceed until it is remedied (the seller will then be at a disadvantage because the purchaser is in possession of the property);
- The purchaser's financial circumstances may deteriorate, and the bank may withdraw the bond;
- One of the parties can die;
- Something in the property (like a pool pump) may break and the parties will argue about who is responsible to repair it.
In a nutshell, occupational rent is a way of paying to use a property that you do not own just yet. It's similar to rent, except that you are renting a property either that you used to own, or that you are about to own with a deal or transfer process in place.
De Lucia Group has been servicing the property industry for over 45 years. Contact us to ensure you get the best advice for all your property-related queries. Michael De Lucia - michaeldl@delucia.co.za
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The information contained herein is not intended to constitute advice and shall only be relied upon by you at your own risk. De Lucia Group does not guarantee the accuracy or completeness of any information posted in this newsletter or otherwise. Any information relied upon by you should be independently verified for accuracy. De Lucia Group reserves the right to change the content distributed or published without prior notice.
18 Apr 2023
Author De Lucia Group