Understanding occupational rent in case of a delayed transfer
Category Advice
In most instances, you want to avoid having to pay occupational rent and wait for the home to be registered in your name before you move in. Similarly, sellers want to be out by the time the transfer goes through. Sadly, as the recent pandemic has highlighted, life doesn't always go according to plan.
It is therefore important for all buyers and sellers to have an understanding of what occupational rent is so that they are prepared for whatever delay life throws their way.
Below, some of the basics and what to look out for regarding occupational rent.
When is occupational rent discussed?
The clause relating to occupational rent will be stipulated in the Offer to Purchase (OTP). This clause is vital as it protects both parties. Essentially it ensures that the seller will be financially compensated if the buyer moves into the home before the transfer occurs. Equally, it will also provide financial compensation if the transfer takes place and the seller is still occupying the property.
Setting an amount for the occupational rent
Within the occupational rent clause, the OTP should state the amount of occupational rent that should be paid. Even if the date of occupation is listed as the date of transfer, the occupational rent amount should still be in the agreement as this ensures that conflict or any misunderstandings are avoided. While the rental amount is ultimately the seller's decision, both parties need to decide and agree upon the amount before signing the agreement. The amount should be market-related.
Never rule out the possibility of occupational rent
Buyers will often have to give notice at their current residence before moving to their new home. If notice is given and the transfer of the property is delayed, they could find themselves occupying their new home sooner than initially planned. Likewise, if the seller has sold their current property to purchase another and is waiting for the transfer to go through, they could end up staying in their current residence longer than expected and paying rent to the new owners. In these instances, knowing and understanding the terms of the occupational rent clause will allow both parties to know what is expected and not be caught unaware.
Raise your questions with your agent
By understanding the sales agreement and its conditions, buyers and sellers can avoid any unnecessary conflict, which will make the entire process of buying or selling a home a far less daunting one. Whether you are selling your home or buying a new home, if you have any questions or concerns around these clauses in your OTP, raise them with your real estate advisor before you sign the legally binding contract.
Author: Private Property - Extracts
