Occupational rent explained for buyers and sellers
Category Property24
According to David Jacobs, Gauteng Regional Sales Manager for the Rawson Property Group, the Occupational Rent clause is one of the most frequently misunderstood parts of property sales agreements.
"Occupational rent is a very important part of a property sales contract, offering protection to both the buyer and seller in case of unexpected changes to the transfer timeline," he says. Here is everything you need to know:
Ownership vs occupation
Ownership and occupation of a property are not the same thing. Occupation takes place on a specific date agreed on by the buyer and the seller. Transfer of ownership, on the other hand, can be affected by conveyancing challenges or delays at the Deeds Office and can be difficult to pin down to a reliable date in advance.
READ: Occupation on transfer or a specified occupation date - which is better?
What is Occupational rent?
"Occupational rent is a rental amount agreed on by both the buyer and seller," says Jacobs. "It is paid by the buyer if they move in before the transfer is complete, or paid by the seller if the seller remains in the home once the transfer has taken place."
How is occupational rent calculated?
According to Jacobs, occupational rent should ideally equal the amount the property could be leased for under normal circumstances - typically between 0.55% and 0.7% of the purchase price per month. However, this is not a hard and fast rule, and the figure can be negotiated as part of the sales agreement.
"Ultimately, it is the seller's decision, but it's in their best interests to keep their expectations fair and reasonable. If the transfer takes place earlier than expected, or occupation is pushed back for any reason, they may be the ones footing the bill, after all," he says.
Who collects occupational rent?
Unlike an ordinary rental, occupational rent is neither paid directly to the property owner or a rental agent. Instead, it is paid to the conveyancing attorney handling the property sale.
"The conveyancer will receive the rent into their trust account and then distribute it as necessary," says Jacobs. "Normally, that means paying it on to the owner, but they may also pay the rental directly to the owner's bank if the owner is in arrears on their bond, for example."
What happens if occupational rent is not paid as agreed?
"Occupational rent is essentially an implied lease, which becomes a separate agreement to the sale as soon as occupation takes place. Any disputes around payment would fall under the Rental Tribunal's authority. If they cannot be resolved amicably, normal eviction processes would apply."
As a result, Jacobs urges owners to ensure payment of occupational rent takes place upfront, and before occupation whenever possible.
Other important considerations
He urges buyers to think very carefully about their desired occupation date based on the occupational rent amount.
"It might be tempting to opt for early occupation, but this can become very costly if the occupational rent is high, or transfer is delayed and you're stuck paying rent for longer than expected."
It's also vital that both parties are aware of their responsibilities regarding the care and upkeep of the property during the early or late occupation.
"Just like an ordinary rental, the property's occupants are responsible for the day-to-day care and basic upkeep, but the owner is ultimately responsible for any major issues with the property," says Jacobs.
"That makes it absolutely essential for sellers to maintain insurance until the moment ownership passes to the buyer, and for buyers to take out insurance starting the moment the property is transferred into their name, even if they have not yet taken occupation."
Author: Property24