The payment of occupational rent is a standard clause in almost every property sales contract, and yet it is also one of the more common causes of contention between buyers and seller, according to Rawson Property Group.<\/p>\n
Confusion abounds over who is responsible for what, and when these payments should come into play, and disagreements over the details can and have caused many a sale to fall through, it said.<\/p>\n
\u201cOccupational rent is also known as occupational interest, designed to protect both the buyer and the seller,\u201d said Bill Rawson, chairman of the Rawson Property Group. \u201cIt can apply to freehold and sectional title purchases, whether you\u2019re buying from an individual or off-plan from a developer, and should be carefully considered and negotiated before signing an agreement of sale.\u201d<\/p>\n
Rawson noted that occupational rent typically comes into play when a buyer moves into the property before transfer and registration has taken place, or a seller remains in occupation of the property for a period after that point.<\/p>\n
\u201cEssentially, it\u2019s a form of financial compensation for the use of a property that you don\u2019t own \u2013 it\u2019s similar to, but not quite the same, as being a tenant and paying rent,\u201d said Rawson.<\/p>\n
The differences between occupational rent and ordinary rent lie in the expectation of a change of ownership, and the fact that it occurs as the result of a sale.<\/p>\n
According to Rawson, occupation rent and ordinary rent for the same property should, however, be very similar figures, and if this isn\u2019t the case, the affected party could try to negotiate a better deal before signing the agreement of sale.<\/p>\n
Be aware that rates and property taxes are always the responsibility of the property owner, unless otherwise specified in the contract, while consumables like water and electricity are normally for the rent-payers account or in this case the purchaser.<\/p>\n
\u201cUnderstanding the details of the occupational rent clause in a sales contract is vital for all property purchases, but even more so in the case of new sectional title developments,\u201d Rawson said.<\/p>\n
He added that occupational rent in off-plan sectional title purchases works a little differently to normal, with the developer typically stipulating that the purchaser must take occupation of the premises from the moment the occupational certificate is issued by the council.<\/p>\n
\u201cThis can happen well before the expected date of transfer, and will continue even if transfer is delayed because of complications on the developer\u2019s end,\u201d he said. \u201cIt also has to be paid whether or not the purchaser chooses to physically occupy the space.\u201d<\/p>\n
Occupational rent for sectional title development purchases is usually calculated as a percentage of the purchase price. 1% is common, but the figure is, in theory, open to negotiation before the contract is signed.<\/p>\n
\u201cGiven that occupational rent is a vital part of most developers\u2019 cash flow plans, it\u2019s very unlikely that they will agree to waive payment altogether,\u201d said Rawson.<\/p>\n
\u201cYou may be able to negotiate a reduced figure, but if not, rest assured that the cost seldom significantly impacts the profitability of a good investment.\u201d<\/p>\n
Rawson does caution buyers to make sure that the definition of the purchase price is clear in the contract, however, particularly as it relates to any optional extras. \u201cYou\u2019re going to want to know whether the extra expense of that designer bath tub and marble tiling are going to be added to the number on which your occupational rent is calculated,\u201d he explains.<\/p>\n
\u201cIn most cases, optional extras are considered additions to the purchase price, and you will need to budget for the resulting occupational rent increase. To avoid this, try to pay for any extras in cash, and negotiate occupational rent as a percentage of the initial purchase price only.\u201d<\/p>\n
\u201cAs with any contract, the most important part of successfully navigating an occupational rent clause is fully understanding all of its implications before signing anything,\u201d Rawson said.<\/p>\n
You\u2019re being lied to about the value of your property<\/strong><\/a><\/p>\n