Occupation notice
Category Advice
Occupational rent is a key clause in a property sale agreement, but one that can cause contention if not understood properly.
Simply, occupational rent is the financial compensation for occupying a property that you do not own - either because, as the buyer, you've moved in before the transfer and registration has been finalized or because, as the seller, you continue to occupy the property after the sales transaction is completed.
The purpose of occupational rent is to protect the interests of both the buyer and the seller by ensuring that both parties are in agreement about the occupation of the property and that compensation in this regard happens in a fair and transparent manner. "The main difference between 'ordinary' rent and occupational rent is that there is an imminent change of property ownership that will effectively end the rental agreement," Floris de Kock, Principal at Leapfrog Polokwane, explains.
The amount of rent charged can sometimes become a bone of contention between the buyer and the seller, De Kock says but adds that it is widely accepted that the occupational rent charged should be comparable to what the property would fetch on the open market. "Consider the area, the size of the property as well as prevailing market conditions to help you determine a price. It is also advisable to consult a trusted property advisor as they will definitely be able to offer insight on what a fair market price would be," De Kock recommends.
Bear in mind that it is the responsibility of the party paying the rent to ensure the rental price is market related. "Make sure to negotiate a rental price that aligns to the market average, and make sure to do this before signing the sales agreement," De Kock advises.
Costs such as rates and taxes can sometimes also cause confusion.... and conflict. Legally, the property owner is responsible for the rates and taxes levied against the property and this remains so until the property transfer is completely finalized. Unless the property sale agreement stipulates otherwise, this is accepted as standard practice. Expenses such as prepaid electricity, levies and similar, however, can and should be negotiated by the parties involved and noted in the agreement.
The occupational rent clause exists to protect the buyer and seller in equal measure. Even if the date of transfer and the date of occupation is the same, provision must still be made for the chance that the transaction doesn't go 100% according to plan. Familiarising yourself with the occupational rent clause is highly advised in any property transaction.
Author: Leapfrog Property Group
