Occupational rent applies when buyers move into a property before transfer and registration have taken place. It can also apply when sellers remain in occupation of the property after transfer and registration.
WATCH : All you need to know about occupational rent.
The practice is a form of financial compensation for the use of a property that one doesn’t own and is designed to protect both buyers and sellers. It applies equally to freehold and sectional title purchases - whether you are buying from an individual or a developer - and should be carefully considered and negotiated before you sign an agreement of sale.
Payment of occupational rent often causes disputes between buyers and sellers which have caused many sales to fall through. Although payment of occupational rent is a standard clause in most property sales contracts, there is often confusion about what each party is responsible for or when occupational rental payments should start.
Amounts
To calculate how much occupational rent the occupants should be paying, you need to look at what the ordinary rent would be if they were paying a landlord for the use of the property in question. The estate agent handling the sale should be able to advise on this.
If the occupational rent amount is too high, the affected party should try to negotiate a better deal before signing the sale agreement.
It’s important to keep in mind that rates and property taxes are always the responsibility of the property owner unless otherwise specified in the contract. Consumables like water and electricity, on the other hand, are usually the responsibility of the rent-payers.
Sectional title
Occupational rent in off-plan sectional title purchases is treated differently from occupational rent in freestanding homes.
The developer usually stipulates that buyers must take occupation of the premises as soon as the municipality issues the occupational certificate. This can happen long before the expected date of transfer and will continue even if the transfer is delayed because of complications experienced by the developer.
Occupational rent resulting from a sectional title development purchase must also be paid regardless of whether or not the buyers occupy the property.
Occupational rent for sectional title development purchases is usually calculated as a percentage of the purchase price. That may sound straightforward, but you need to be clear about the purchase price. For example, the optional extras you have signed for are not always included in the purchase price for purposes of calculating the occupational rent.
In most cases, optional extras are considered part of the purchase price, so you will need to budget for the increased occupational rent. You may be able to avoid this by paying for any extras upfront. However, you will need to carefully calculate whether or not negotiating occupational rent as a percentage of the initial purchase price only will result in savings.
The percentage amount may be negotiable before the contract is signed.
Clarity
As with any contract, it’s important to understand all the implications before signing any documents.
If you have any doubts, ask a reputable estate agent to advise you or have your attorney review the documents before signing a legally binding agreement with potentially serious financial repercussions.
Writer : Sarah-Jane Meyer