Occupational rent – are you covered?

Reading the fine print and ensuring that every eventuality is covered in an agreement of sale is one of the most crucial aspects of buying or selling property.

This is the advice given by Adrian Goslett, the CEO of RE/MAX of Southern Africa who says that according to the laws governing property sales in South Africa, everything has to be reduced to writing and anyone who wants to conclude a sale without any complications should bear this in mind before signing any agreement.

“Although a sales contract normally has a section discussing occupational rent, many buyers and sellers do not realise its importance,” he says.

Goslett explains that essentially, this clause is intended to protect both parties as it covers the seller when the buyer moves into the premises before transfer has taken place, or the buyer should the seller stay in the property after it has been transferred into the buyer’s name. The clause should clearly state how much occupational rental must be paid each month.

While a buyer may have no intention of moving into a property before it is registered in his/her name, situations may arise where early occupation has to take place. Goslett says that delays at the Deeds Office and problems with obtaining rates clearance certificates are just two of the factors that may delay the transaction.

Likewise, a seller who initially didn’t plan to move out before the transaction has been completed may have to leave a property simply because they didn’t factor delays in transfer into the equation, or they might need to stay on for longer for a number of reasons.

Although frustrating, those who have foreseen such problems are in a far better position to deal with them than those who have simply chosen to ignore the occupational rent clause.

Both sellers and buyers, says Goslett, who do not ensure that the required occupational rent amount is stipulated in the agreement of sale leave themselves wide open. “Buyers do not call the shots in this area and the seller needs to ensure that the amount of occupational rental reflected in the sales contract covers the actual bond repayments that he has to continue making until the sale has gone through.”

On the other hand, the seller cannot be unreasonable in these cases by demanding a figure well in excess of the market-related value of the property and the bond amount owing.

“It is imperative for the buyer and seller to agree upon a figure that is fair to both parties. The main objective of any sales agreement is to clearly set out the intention of the parties so that there can no argument later on.”

Generally speaking it is normal practice for an agent to insert an amount that ensures that the bond amount that the seller is paying is fully covered. However, some agents put in an amount equal to 1% of the purchase price. This can result in seller losing money in the event that he is servicing a high bond.

Goslett warns that it is vital for both the buyer and seller to read the sales contract in its entirety, thereby ensuring that every eventuality is understood and taken care of adequately. “Buying and selling property is an emotional time for everyone and adopting a ‘things will work out for the best’ approach could end up in conflict, costing money and souring what should be one of the most exciting moments of your life.”

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Although there may from time to time be long delays in property sale and transfer deals, the whole process is commendably sound and tamper-proof, says Ulrik Strandvik of Grant Gunston Attorneys.

Strandvik says this basic principle is recognised in SA. “It is a tenet of SA law that is fundamental to our whole legal system and we can be grateful for it.”

Over the years, says Strandvik, the legal fraternity has fought hard to protect, preserve and improve the transfer and registration process – “even though at stages in our history the State has ridden roughshod over certain owners’ rights.”

“A property sale is today a long and complicated process but every step along the way is vital – and that, in my view, is why appointing a reputable conveyancer is so crucial.”

The average property seller – or even the average attorney – without conveyancing qualifications cannot, says Strandvik, be expected to know that the sale and transfer of a property involves such things as: 

1. securing both a rates clearance and SARS tax clearance certificate
2. paying transfer and capital gains tax
3. ensuring that the sale has the Homeowners’ Association’s approval
4.  registering the transfer and site plans with the deeds office
5. seeing to numerous other details.

The conveyancer, says Strandvik, is always at risk because if he makes a mistake that invalidates the sale or delays the sale, he will be liable to clients for this. 

“A good conveyancer will process a sale and transfer in a way that saves the client money and speeds up the process,” he says.

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