Many first-time buyers don’t understand the difference between taking possession of their new property and taking occupation – or the provisions in a sale agreement for the payment of occupational rent.
“Actual possession only happens when the transfer of ownership from seller to buyer is officially registered in the Deeds Office,” says Shaun Rademeyer, CEO of BetterLife Home Loans, SA’s biggest mortgage originator. “However, buyers are sometimes allowed to occupy their new home before the transfer process has been completed, and this can lead to confusion.”
He explains that many sale agreements provide for the buyers to be able to move into the property by agreement with the seller as soon as their bank provides “guarantees” to the transferring attorney that the purchase price will be paid.
“But this does not mean that they actually own the property yet, and in most instances, they will be required to pay occupational rent to the sellers for the period between the day they move in and the actual date on which formal transfer takes place.
“And the calculation of this “rental” has nothing to do with the buyers’ projected monthly bond repayment, or the seller’s current monthly instalment. It is usually set quite a lot higher, at around 1% of the purchase price per month, so buyers will need to budget for this – or consider whether it is really cost effective for them to take occupation before transfer.”
On the other hand, Rademeyer says, sellers sometimes have a reason that they need to remain in the home even after the date of transfer. “They could be waiting for their own new home to be renovated, for example, or finishing a school term or a work contract.
“In such cases, if the buyers are amenable to them staying on, they would be the ones having to pay occupational rent, for the time between the date of transfer and the day they actually move out. And once again, they will most likely be paying more than the monthly bond repayment they have been used to, and will need to budget for the extra cost.”
He says that when such arrangements are being made, it is most important that the actual date on which the buyer will be given occupation, the actual date on which transfer is anticipated and the actual amount of occupational rent to be paid are all clearly written into the sale agreement and signed by both parties to avoid the possibility of misunderstandings and possible disputes.
“Also, the agreement should specifically provide for the seller to keep up the homeowner’s insurance (HOC) until the date of transfer – even if the buyer is already living on the property – to make quite sure the home is covered in case of fire, flood, wind or other disastrous damage that might occur.
“And finally, the buyer should not be allowed to store anything on the property while the seller is still living there, and the seller should not be allowed to leave any belongings on the property after the buyer has taken occupation. The risk of a dispute over damage – real or imagined – to one another’s goods is very high, and insurance issues could then also become very complicated.”