Occupational rent: Don’t skip the fine print

When it comes to buying and selling property, one of the most important aspects to consider is the fine print in the contract, says Adrian Goslett, CEO of RE/MAX ofSouthern Africa.

Reducing the contractual agreement to writing when wanting to purchase or sell a property is required by the law governing property transactions inSouth Africa, and, with the introduction of the Consumer Protection Act last year, contractual agreements have become far easier to understand. “However,” says Goslett, “it is vital that both parties involved in the transaction ensure that all aspects of the agreement have been stipulated correctly and agreed upon before either party signs. This is particularly important for areas of the contract that deal with issues such as occupational rent. Although most sale contracts will have a section that addresses this aspect of the transaction, often it is not given the required attention that it deserves.”

The clause in the contract regarding occupational rent is of particular significance as it is intended to protect both parties involved in the transaction. According to Goslett, the section in the contract referring to occupational rent essentially covers the seller when the purchaser moves into the residence before the transfer of ownership has transpired. The clause offers equal protection to the buyer should the seller still reside at the premises after the property has been transferred into the buyer’s name.

In the occurrence of either of the above situations, the clause must clearly state the amount of occupational rent that will be paid to the other party each month. This way both parties have a clear idea as to what to expect.  An occupational rent amount must be included in the agreement of sale, even if the occupation date is stated as the date of registration of transfer, this will avoid any conflict at a later stage with regards to the amount to be charged should the parties subsequently agree to bring the occupation date forward for whatever reason.

Goslett says that while buyersgenerally have little intention of moving into the property until it has been registered in their name, in some instances this has proved necessary.  Delays in the transfer process such as the rates clearance from the Local Council or the Deeds Office taking longer than expected, and the fact that many buyers have to give notice on their current home and move out by a set date could force the buyer to take occupation earlier than they intended.

Alternatively, the seller might have purchased another property and may have to stay in the sold residence for longer than intended if that transaction is delayed for whatever reason. Although either situation could be an annoying aspect to deal with, parties who have read the occupational rent clause and understand what is required of them will be in a far better situation than those caught out by surprise.

“As the issue of occupational rent affects both parties, it is important that both the seller and buyer agree upfront to the amount charged and agree that it is fair. The clause is designed to avoid conflict at a later stage, not create it. Although the buyer will have very little say as to what amount the occupational will be, the seller should be reasonable and set a figure that is in line with market-related rentals in that area,” says Goslett. 

In some cases, agents have used an amount that is equal to 1% of the purchase price. However, if the seller has a high bond on the property this could result in them losing money.  “It is for this reason,” says Goslett, “thegeneralpractice is for the occupational rent amount inserted into the contract to be enough to cover the bond repayment on the property.”

He concludes by saying that if buyers and sellers have all their bases covered and understand what is contractually required of them, they can avoid conflict and can make the process of buying a home much easier and more enjoyable for all parties involved.

* This report was prepared by RE/MAX

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