Occupational Rent Explained

Occupational Rent Explained

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.

Author: Shelley Orgill

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. Once the agreement of sale has been signed it is a natural response to want to move in as soon as possible, however the transfer process may take a few months before the property is legally transferred into the purchaser’s name. 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.

What is occupational rent?

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 amount payable by the occupant is agreed to in the agreement of sale, and commonly amounts to 1% of the purchase price.

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.

What is the purpose of paying 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. Occupational rent may also serve to benefit the purchaser, as he or she may then not need to move twice, as well as having to pay rent elsewhere. It should be noted that no renovations or alternations may be made to the property, by the occupant, prior to the transfer being registered at the Deeds Office.

What expenses are covered by occupational rent?

The amount payable for occupational rent does not include utilities such as water and electricity, which are separate costs, generally borne by the occupant. Usually, the rates and taxes are borne by the owner, unless otherwise stipulated in the agreement of sale.

What should the occupational rent clause outline?

The occupational rent clause should stipulate that the purchaser will take early occupation of the property on a specific date and that the seller will provide vacant occupation, ie no one else will be living in the property when the purchaser moves in. Additionally, the clause should state what the occupational rent payable is and the date on which it is payable. It should also provide who bears the costs for rates, taxes, water and electricity. In order to avoid any disputes concerning damages, the clause should stipulate that the owner is prohibited from storing items on the property. Furthermore, it should be agreed to that the seller will maintain the relevant insurance until the date of registration of the transfer, to safeguard against any significant damage.

Occupational rent and sectional title schemes

In the case of a new sectional title scheme (property purchased off-plan) the developer will usually state that the purchaser may take early occupation of the property once the occupational certificate is received.  This certificate is usually received well before transfer occurs and as result a purchaser will be able to take early occupation which will result in the purchaser being liable for payment of occupational rent.

It is of utmost importance that the agreement of sale is read carefully and that the parties have a full understanding of all the implications of the clauses contained therein, prior to signature. The implications of the occupational rent clause may become a point of contention and as a result, may result in adverse financial, legal and administrative effects. It is therefore imperative that parties who enter into agreements of sale understand what their rights and responsibilities are, prior to signing the contract.

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