The ins and outs of occupational rent

An occupational rent clause appears in just about every agreement of sale, but there are often misunderstandings over how it works. In a nutshell, occupational rent is a way of paying to use a property that you do not own just yet. It's similar to rent, except that you are renting a property either that you used to own, or that you are about to own with a deal or transfer process in place. 

Once you've signed on the dotted line to buy the home of your dreams, it's natural to want to move in as quickly as possible. However, the transfer process can take a few months to make the property legally yours, so you could choose to take advantage of an occupational rent clause in the agreement of sale document, which will allow you to move in on an agreed-upon date before the conclusion of transfer formalities. Essentially, you will be a temporary tenant in the home that is about to become yours. 

How does occupational rent work?

Think of occupational rent as any other property rental. Nothing changes until the day that transfer goes through, and that means that as the "tenant", you are typically responsible for payment of rent as well as water and electricity, while rates, taxes and levies are for the account of the current owner. The amount payable for occupational rent must be stipulated in the offer to purchase contract, and should be based on the ordinary rental amount that could reasonably be charged for the property. 

Occupational rent can also work the other way, where the seller of a property continues to live in a property after the date of transfer, and therefore pays occupational rent to the new owner. It is a fully optional clause, and as a seller, you cannot compel a buyer to agree to move in on a particular date and pay occupational rent.

What's the point of occupational rent?

Occupational rent has the potential to benefit both the seller and the buyer. For the seller, it can help with the ongoing bond payments and upkeep of the property, for which he or she is responsible until the date of transfer. For the buyer, it can remove the need to pay rent elsewhere or, in some situations, to have to move twice. No alterations can be done to a property until the transfer process has been completed, however, so paying occupational rent does not give you carte blanche to get a head start on your planned renovations.

Things to check in the occupational rent clause

One of the conditions stipulated in the occupational rent clause will be the rental amount payable, and a buyer should not be afraid to negotiate on this point if it seems unreasonable based on what similar properties in the area are being rented for. A buyer should also read the contract carefully to ensure that the contract does not stipulate anything untoward, such as them being responsible for payment of rates and taxes.

Occupational rent in sectional title development purchases

Occupational rent is not only applicable to an individual buying property from another individual. If you are buying a sectional title property off plan, the developer will usually stipulate that you take occupation as soon as the occupational certificate is issued. This date often comes long before the transfer formalities have been completed, and you will be liable to pay this occupational rent whether or not you plan to live in your new home during this time.

If a sale agreement includes an occupational rent clause, the most important factor is determining a fair rental price. This figure should not be guesswork, and neither should it be determined by the buyer or seller. Jawitz #RealPartners have wide experience in determining fair rental prices, and allowing us to take care of occupational rent means that there are no unpleasant surprises later. If you're looking to buy or sell property, contact us today.