Occupational Rent
It is not uncommon for buyers to move into a property before the transfer is complete, or for sellers to remain resident for a while after ownership has been transferred.
This is when occupational rent becomes due by the party who becomes the resident of the property.
WHAT IS OCCUPATIONAL RENT?
The rent that the buyer will pay to the seller if they move into the property before transfer;
Or
The rent that the seller will pay to the buyer if they remain on the property after transfer.
At the time of signing the Offer to Purchase, the buyer and seller will agree on the rental amount to be paid.
HOW MUCH IS OCCUPATIONAL RENT?
Ideally, the rent should equal the same amount that the property could be rented for under normal circumstances.
This amount is normally between 0.7% and 1% of the purchase price per month, however the amount is negotiable between the parties. The best way of checking this rent is to compare other current, similar properties to rent on the market.
It is in the interest of both parties to keep this rental fair and reasonable as either party could be liable for the bill dependant on the speed of the transfer.
WHERE IS OCCUPATIONAL RENT PAID?
The rent is paid to the conveyancing attorney handling the sale of the property.
They will receive the money into their trust account, and distribute it as necessary (either directly to the buyer/seller or to pay expenses eg: bond or COJ if required).
WHAT HAPPENS IF OCCUPATIONAL RENT IS NOT PAID?
By law, when a person takes up residence in another’s property, they are expected to pay rent as compensation as they are enjoying the full benefits of staying in the property. Failure to honour occupational rental payment arrangements may result in property sale cancellations. When the Purchaser fails to honour rental agreements, this is seen as breach of contract, therefore the Seller could sue the Purchaser for unpaid rent while occupying the property and visa versa.
FOR HOW LONG MUST ONE PAY OCCUPATIONAL RENT?
From the day the buyer moves in, up to and including the exact day of transfer,
Or
From the exact day of transfer until the day that the seller moves out.
CARE AND UPKEEP OF THE PROPERTY DURING OCC RENT
Just like an ordinary rental, the property’s occupants are responsible for the day to day care and upkeep of the property, however the owner (whether they be the new or old owner) is responsible for any major problems.
Therefore Sellers must maintain insurance on the property.
Buyers must immediately take out insurance starting the moment the property is transferred into their name.
WHO PAYS WATER, ELECTRICITY AND RATES?
As with any rental, the tenant would be responsible for electricity and water consumption a well as refuse removal.
The owner (whether it be the new or old owner) would be responsible for the rates and sewerage and levies if applicable.
ONE DOWNSIDE TO OCCUPATIONAL RENT
Both Sellers and Buyers should take heed that should transfer be delayed for a long period of time, the party that has occupation of the property will be footing the occupational rent bill until registration.