Understanding Occupational Rent in South Africa

Occupational rent is often understood as the monetary payment for occupying a property that you do not own – either because, as the buyer, you’ve moved in before the transfer/registration has been finalised or because, as the seller, you continue to occupy the property after registration into the buyer’s name.  

It protects both the Seller and Buyer by providing certainty and fairness in cases where the property transfer does not go completely as planned or when an earlier or later occupation date is agreed upon.  The amount is generally agreed upon in the agreement of sale and is usually / roughly equal to the amount the property can be rented out for or calculated at 0,6% - 0,8% of the purchase price.  The rates and taxes for the property remains the responsibility of the registered owner until registration unless the contract stipulates otherwise. Similarly, liability for utility charges, such as electricity, water, and levies, can be negotiated by and between the parties in the contract.

It often happens that due to the legalities of or complications in a property transfer the seller and buyer will be ready to move before the property is transferred into the name of the buyer.  This is where the occupational rent clause comes into effect.  

The occupational rent clause in the agreement of sale is a crucial clause but is often a major point of disagreement between a seller and a purchaser.

There are a few factors to take into consideration regarding occupational rent before signing:

The difference between occupational rent and ordinary rent lies in the expectation of a change of ownership because the property is in the process of being transferred. The occupational rent ensures that the seller will be financially compensated if the buyer moves into a property before registration/transfer occurs, and vice versa.

The logic behind this arrangement is that irrespective of an impending change of ownership, the current owner is still required to service their bond repayment and manage costs associated with the upkeep of the property until ownership is transferred.

Occupational rent can come into effect for several reasons, but usually, because there is some delay between moving dates and the finalisation of the property transfer. Sometimes it’s more feasible and or practical to pay occupational rent, especially if the buyer is moving from rented accommodation.  It can also save having to move twice, with associated costs, in same situations.

It is important to note that this rent is a flat rate which does not cover basic expenses such as water and electricity unless stated otherwise in the agreement.

SOURCES:

1. Applying IFRS for the real estate industry-Page 58, Para 4.8

2. Rawson -understanding occupational rent and what you need to know-date accessed-14/02/2024.

Written by: Nqobile Magwaza
Moderated and approved by: Clive Smith

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