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Quick Guide to "Occupational Rent"

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Are you on the cusp of buying your dream home but caught up in the whirlwind of property transfer? Let's talk about something crucial yet often overlooked: Occupational Rental. This kicks in when you're all set to move into your new property, but hey, the registration of transfer is still in the pipeline. Here are some tips to guide you on the subject. 

What Is Occupational Rent Anyway?
Occupational rent is a relatively unique arrangement in property transactions. Consider it a temporary rental agreement kicking in when you've bought a property, but the transfer isn't finalised. It's like renting, but with a twist - renting a property you're about to own. The payment is usually around 1% of the purchase price, mirroring standard rental rates.

Why Should You Pay Occupational Rent?
"But why pay rent for a property I'm buying?" you may ask. Here's the deal: The current owner still has expenses - like bond repayments and maintenance costs. Occupational rent ensures they're not out of pocket while you get early access to the property. It's a fair deal, ensuring everyone's financial interests are protected during this transition.

Who Collects Occupational Rental?

Occupational rent differs from regular rental payments as it isn't directly paid to the property owner or a rental agent. Rather, this specific rent is managed by the conveyancing attorney overseeing the property transaction. The conveyancer collects the occupational rent into their trust account. From there, they distribute it as required. Typically, the rent is passed on to the property owner. However, in certain circumstances, such as if the owner has fallen behind on their bond payments, the conveyancing attorney might directly pay the rental to the owner's bank. This ensures a smooth and efficient handling of funds during the property transfer process.

What's Included in Occupational Rent?
Occupational rent covers just the basics - your right to live in the property. It doesn't include utilities like water and electricity; those are on you. Rates and taxes? Typically, the owner's responsibility. The rent can be set monthly or pro-rated, based on how long you'll occupy the property before the transfer. A tip here - make sure you get meter readings on the date of occupation and registration - that way the consumption can be calculated and allocated correctly.

How much should the Occupational Rent be?
Do some homework on rental prices in your area of interest. This research can be your best friend in negotiating a fair occupational rent rate. Remember, knowledge is power, especially in real estate! This figure shouldn't be a "guesstimate" and all the parties should agree on the amount because any delay in the transfer registration can have significant financial consequences.

What Happens If Occupational Rent Is Not Paid As Agreed? 

Consider occupational rent as an implied lease agreement; it becomes a contract from the property sale once occupation occurs. Should there be any disagreements regarding the payment, these fall under the jurisdiction of the Rental Tribunal. If these disputes can't be settled amicably, standard eviction procedures would come into play. It's advisable to ensure that the payment of occupational rent is handled upfront and, ideally, before occupation to avoid such complications.

What happens if the property registers in my name while the Seller is still living in it?

If the seller is in the process of purchasing a new property, and is awaiting the transfer of the new property, they might find themselves living in their existing home for a longer period than they initially planned. In this case, they may have to pay rent to you - the buyer. This is one of the reasons why understanding the occupational rent clause is essential, as it ensures that both the seller and the purchaser are fully aware of their obligations and expectations.

Are There Special Considerations for Sectional Title and Off-Plan Purchases?
Buying a new "off-plan" property? The rules of occupational rent still apply. You might have to pay occupational rent when the occupational certificate is issued, even if the transfer is delayed. Watch out for extra costs like optional finishes in new developments - they can bump up your occupational rent.

What Should Be Included In The Offer To Purchase?
Your occupational rent clause needs to be crystal clear. Include the rent amount, who pays for what (rates, taxes, utilities), and a statement ensuring the property is exclusively yours during the occupation period. NB - don't forget to ensure that Homeowners Cover (HOC) is maintained until transfer.

What Is The "Occupational Rent Trap"?
The "occupational rent trap" is a real thing. It happens when a disagreement over the terms leads to financial headaches or delays. The best defence? A well-scrutinized Agreement of Sale. Make sure every detail, especially around occupational rent, is agreed upon (and signed) by both parties.

Do You Fully Understand Your Contract?
Never rush into signing an offer to purchase. Understand every clause, especially those around occupational rent. It's not just about the now; it's about safeguarding your future financial well-being. And if you are working with a reputable estate agent, they will work through all of the clauses with you.

Have You Given Careful Consideration To The Occupation Date?

For buyers, selecting the right occupation date is crucial, particularly when considering the implications of occupational rent. The allure of moving in early is understandable but be cautious: if the occupational rent is substantial or if there are unexpected delays in the transfer process, you may find yourself incurring higher rental costs for a prolonged period.

Who Maintains The Property In The Period Between Occupation and Transfer?

Both parties must have a mutual understanding regarding the property's maintenance during early or late occupation periods. Like a typical rental situation, the occupants are responsible for the day-to-day maintenance and minor property repairs. However, significant issues remain the owner's responsibility.

What Insurance Is Needed?

The importance of insurance is paramount. Sellers must ensure their property is insured right up until ownership is legally transferred to the buyer, and buyers should secure insurance for the property from the moment it is officially transferred to their name, regardless of whether they have physically occupied the property by that time. This safeguards both parties against unforeseen circumstances.

Knowledge Is Your Best Asset
Occupational rent can be tricky, but you can make informed decisions with the right information and a keen eye for detail. Remember, whether buying or selling, understanding the nuances of your Agreement of Sale, particularly the occupational rent clause, is key to a smooth and successful property transaction. 

Contact your local Chas Everitt Estate Agent when in doubt and let them do the heavy lifting for you. Happy house hunting, and here's to making informed property decisions!

Author: Chas Everitt

Submitted 17 Jan 24 / Views 1541