What you need to know about occupational rent

© Oleksandr Nebrat – 123RF.com

South African law states that those who would like to either sell or buy a property are required to reduce all contractual agreements to writing. The reason for this is to reduce the risk of ambiguity during the property transaction and so that each party has a clear understanding of what is required of them. Contractual language has become easier to understand since the Consumer Protection Act was introduced in 2011.

However, it is still necessary for both parties to read through the sale agreement and agree to all its various conditions and terms before they put their name to it, especially when it deals with aspects such as occupational rent.

The clause pertaining to occupational rent is crucial because it shields both the buyer and seller. It ensures that the seller is financially compensated if the buyer moves into the home before transfer. Conversely, it provides the buyer with financial compensation if the seller is still living in the property after the transfer has occurred.

When things don't go to plan

The occupational rent provision is often glanced over because most buyers only intend to move into the property once it has been registered in their name. However, things don’t always work out according to plan and buyers may find themselves in a situation where they are required to move into the property sooner than they initially expected. If a buyer has given notice at their current residence, and transfer on their new home is delayed for whatever reason, they could find themselves in occupation of the property before it is in their name. It is this exact situation that makes the occupational rent clause so important.

On the flip side, it is not only the buyer that runs the risk of having to pay occupational rent. The majority of homeowners sell their property to purchase another one. They too may have to wait for the transfer to go through on their new home while living in their current residence. If they are still living in their current residence when it is transferred into the new owner’s name, they will be liable to pay occupational rent. While not ideal, it is in these situations that knowing and understanding the terms of the occupational rent clause that will allow everyone involved to know what is expected and not be caught unaware.

Stipulate the occupational rent amount

Should either circumstance come to light, it is essential that the occupational clause stipulates the amount of occupational rent to be paid. Even if the date of occupation is listed as the date of transfer, the rental amount still needs to appear in the agreement in writing to avoid conflict or any misunderstandings. The seller will ultimately decide what amount the occupational rent will be, however, both parties must be in agreement before signing the document. The rental amount should be market-related and should ideally be enough to cover the bond repayment.

Having an understanding of the sales agreement and its conditions will help sellers and buyers to avoid any unnecessary conflict, and will make the entire process of buying or selling a home far less daunting.