Otherwise occupied: A quick guide to occupational rent

Both the most overlooked and the most contentious clause in the property sale agreement, occupational rent is a concept that needs to be well understood by both the buyer and the seller. 

This is the view of Bruce Swain, CEO of Leapfrog Property Group, who explains that it is a clause designed to protect both parties and should be regarded with the appropriate seriousness to ensure a smoother transaction. 

"Occupational rent is simply the financial compensation for occupying a property that you do not own," Swain explains. In the case of the buyer, occupational rent comes into play if they have moved into the property before the final transfer and registration has taken place. Conversely, in the case of the seller, occupational rent is paid to the buyer if the seller continues to occupy the property after the transaction is formally completed. 

Numbers game 

It is helpful to regard occupational rent as a mechanism that protects both the buyer and the seller in terms of the appropriate date for occupation of the property, "Compensation should be fair and transparent, and must be understood as no different to 'ordinary rent' other than that an imminent change of property ownership will end the rental agreement," Swain explains. 

The amount of rent charged should be comparable to what the property would fetch on the open market, though the parties involved could come to their own agreement on this. Swain advises that a trusted property advisor be consulted for advice on market prices of similarly sized properties to help determine a fair rental price.  

"The party paying the rent should ensure the rent is market related - and thus far - and feel free to negotiate if it is not," Swain recommends. 

Property taxes, levies & more 

The question around who is responsible for the payment of property rates and taxes should be easily remedied with the understanding that legally, property rates and taxes are always for the property owner's account, unless the contract stipulates otherwise. Similarly, the insurance on the building is also the owner's responsibility, unless an alternative agreement has been reached. 

Expenses such as electricity, water, levies and the like should be negotiated by the parties involved in the occupational rent agreement. 

Lastly, Swain points out, even if the date of transfer and the date of occupation is the same, provision must still be made for the chance that the transaction doesn't go 100% according to plan.