It not uncommon to find an occupational rent clause in an agreement of sale contract however, there is often confusion surrounding the practical aspects thereof. Therefore, the occupational rent clause may be utilised, which will permit a purchaser to move in on an agreed upon date before the registration of the transfer at the Deeds Office has occurred.
In a nutshell, a purchaser can take early occupation move into a property that he or she will soon become the owner of in exchange for payment of occupational rent. It is important to state at the outset that a purchaser is not obliged to take early occupation of the property. This is a decision that the purchaser can make and is only possible if the seller can vacate the property or ensure vacant occupation of the property, prior to registration of the transfer. Occupational rent or sometimes referred to as occupational interest, refers to the amount due by the purchaser of a property to the seller in exchange for the purchaser moving into the property prior to the registration of the transfer.
It is important to note that this does not give rise to the usual rights and duties of a landlord and tenant, as there is no lease agreement entered into between the parties. The seller of a property may also utilise the occupational rent clause in the agreement of sale, whereby the seller continues to live in the property after the registration of the transfer has occurred and as a result, the seller pays the new owner occupational rent.
The occupational rent clause ensures that the property owner is monetarily compensated while the purchaser occupies the property prior to registration and transfer. The reasoning behind this payment, despite the pending change of ownership, is that the property owner is still obligated to pay the bond instalments and maintain the property and the costs associated thereof until ownership is transferred. 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 himself paying occupational rent. If the seller has sold his current property to purchase another and is waiting for the transfer to go through, he could end up staying in his current residence longer than expected.
This would mean that he could end up paying occupational rent to the new owner 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 will allow the parties involved to know what is expected and not be caught unawares.
Goslett says that in the event of either possibility happening, it is imperative that the occupational clause in the sales agreement state the amount of occupational rent that should be paid.
Even if the date of occupation is listed as the date of transfer, the amount of occupational rent should still be put into the agreement in writing. In the case of new off-plan sectional title developments, the developer will normally require the buyer to move in to the property as soon as the occupational certificate is issued by the council.
In this case, occupational rent has to be paid whether or not the buyer chooses to physically move into the property. This means that when buying in sectional title developments, you could potentially be left paying twice - for the property you occupy, and the newly built property.
In the case of new developments, you should always make sure that what makes up the purchase price of a property is clear in the contract — particularly when it comes to optional extras.
In most cases, optional extras that corner bath, extra kitchen storage, or optional finishes are considered additions to the purchase price, and will increase your occupational rent.
To avoid this, try to pay for any extras in cash, and negotiate occupational rent as a percentage of the initial purchase price only. Tip: When buying from a new off-plan development, it might be possible to negotiate your occupational rent rates with the developer. Because the Agreement of Sale is a legally binding document, signed by both parties, there is nothing either party can do to change the agreement after the fact.
In certain cases the party in breach can be sued for damages. The occupational rent trap happens when the occupational rent clause comes into effect, and some element of the agreement is contested by either buyer or seller, costing one party extra money, or delaying the sale process.
The only way to avoid the trap is to scrutinise your agreement of sale before signing, and ensure that all clauses are agreed upon by both parties buyer and seller. Trouble can be avoided if you and your estate agent insist on a clause in the Agreement of Sale clearly stipulating the amount of occupational rent to be paid, and how it is calculated. Never rule out the possibility of occupational rent 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 sooner than initially planned. Likewise, if the seller has sold their current property to purchase another and is waiting for the transfer to go through, they could end up staying in their current residence longer than expected and paying rent to the new owners. It is in these instances that knowing and understanding the terms of the occupational rent clause will allow both parties to know what is expected and not be caught unaware.
Setting an amount for the occupational rent Within the occupational rent clause, the OTP should state the amount of occupational rent that should be paid.
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