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The low-down on occupational rent

Whether buying or selling property, it is always vital to know exactly what all the conditions in the offer to purchase stipulate, says Adrian Goslett, CEO of RE/MAX of Southern Africa.
 
He notes that according to the law which governs property transactions in South Africa, those who want to sell or purchase a property are legally required to reduce all contractual agreements to writing. The aim of this is to mitigate the possibility of any ambiguity and to have a clear guideline as to what each party is entitled to and what they are responsible for.  “Since the introduction of the Consumer Protection Act, contractual language has become far easier to understand, however, it is still imperative that each party ensures that they have read and agreed with all the conditions and provisions in a contract before they sign it, particularly when dealing with issues such as occupational rent,” says Goslett.
 
He says that the occupational rent clause is essential as it is ultimately intended to protect both the buyer and seller. Goslett says that the clause will in essence allow financial compensation for the seller should the purchaser move into the home before transfer has taken place. It will also provide equal financial compensation to the buyer should the seller still reside in the home after transfer.
 
According to Goslett, while most property sale agreements will have a clause that deals specifically with occupational rent, it is often overlooked due to the fact that most buyers only plan to move into their new home once the transfer of ownership has taken place. “Most buyers intend to wait for the property to be registered into their name before moving in; however certain circumstances may arise where they are forced to move in before this happens. Often buyers will need to give notice on their current residence and will have to move by a certain date. It is not uncommon for delays to occur in the transfer process, which could see them living in their new place while it is still owned by the previous owner.  In an instance like this knowing what the contract says about occupational rent will become much more important,” says Goslett.
 
He notes that it is not only the buyer that could find themselves in the situation of paying occupational rent. The seller, for example, may have sold their property and purchased another and are waiting for the transfer on the new property. A delay in the transaction could see them staying on at their current residence for longer than expected and paying occupational rent to the new owners. While 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 unaware. 
 
“If either of these circumstances occur, it is vital that the clause states the amount of occupational rent that will be paid by the relevant party each month. 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 help avoid any misunderstandings or conflict by giving each party a clear indication as to what they can expect,” says Goslett. “Although it is ultimately the seller’s decision, both parties will need to decide and agree upon the occupational rent amount in advance of them signing the offer to purchase agreement. The amount should be in line with market-related rental amounts in the area or, as a rule of thumb, enough to cover the bond repayment on the property.”
 
Goslett says that understanding what is required contractually puts buyers and sellers in a more sound position when it comes to the property sales transaction. “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,” he concludes.


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