Whether the date of occupation should be a particular date or on registration of transfer is an issue that often gives rise to debate.
When a purchaser decides to occupy the property once the transfer is complete, it prevents the purchaser from taking occupation and then delaying the transfer on the basis of complaints regarding the condition of the property.
However, this is not always possible and each case needs to be dealt with according to the specific requirements of the parties.
If the occupation date is on transfer of the property, and then parties wish to make a change to this date, then it should be done by way of written agreement to avoid the confusion that is associated with verbal agreements.
This agreement must then be signed by both parties which is in compliance with the “no variation” clause found in most sale agreements.
Having the occupational rent amount in the clause along with the signed approval from both parties can save a lot of time and avoid further discussions and negotiations on the issue if it arrives.
This should be based on a market related rental for that property as this avoids the allegation later in the process that one of the parties was favoured or prejudiced in the determination of the occupational rent.
It is the responsibility of both parties to make sure that the occupation clause includes the above costs.
Any assumptions made could lead to confusion regarding the certain party that is liable for these costs, and so said party’s liability to pay each of these costs should be clearly set out.
Generally, it is the seller who is liable for levies and rates and taxes and then it is the responsibility of purchaser to pay for the water and electricity consumed for the occupation period prior to the transfer.
When parties agree to a delayed occupation date, then the agreement must include instruction to the property conveyancer as to whether the registration must be delayed in order to be concurrent with the amended date or if the process should be as originally agreed to.
However, if the transfer is registered and the seller remains in occupation after this date, then occupational rent is payable by the seller to the purchaser for this period.
When the delayed date of occupation falls on the same date as the delayed registration where the purchaser price is paid in cash, then the parties need to structure the timing of the securing of the purchase price to avoid the purchaser being at a disadvantage.
Ideally the purchaser should pay a substantial deposit and then be allowed to secure the balance of the purchase closer to the date of transfer.
By doing this, the purchaser avoids losing substantial interest on the funds held in a trust or a cheque account.
Occupation before transfer shouldn’t be given to a purchaser before the suspensive conditions in the agreement have been correctly fulfilled.
The bond must be granted under normal contractual agreements, all FICA must be provided, the transfer and bond costs must be paid and the transfer and bond documents should be signed.
If the agreement calls for cash payment, then the purchase price must be paid into the conveyancer’s trust account.
Where the property is occupied by a tenant and the purchaser steps into the shoes of the seller upon registration of transfer and the purchaser will have the same rights and obligations against the tenant after transfer as the seller had before transfer.
It is important that the estate agent obtains a copy of the lease and then give it to the purchaser before they enter into the offer to purchase.
Getting the purchaser to sign acknowledgment of receipt or attaching a “read receipt” if the lease is emailed helps to prevent disputes as to the terms and conditions of the lease after transfer.
The sale agreement should include a clause which allows for the conveyancer to pay the deposit and the pre-agreed to rental price to the purchaser from the sellers proceeds upon registration.
This also helps to prevent any disputes going forward with the process.
If any doubts arise in the process of transfer and relating to the date of occupation, then it is advisable to consult a conveyancer who can analyse the lease agreement and then suggest steps going forward.
The parties must definitively determine when the lease expires and whether the tenant has a right to renew the lease for a further period.
If this is the case, then this needs to be added to lease and then signed by the seller and the tenant. The end of the lease must coincide with occupation unless otherwise agreed to.
In the event of the purchaser being nervous as to whether the tenant will vacate the property, the parties can use a clause which we refer to as the “Comfort Clause”.
It requires the conveyancer to halt the registration of transfer of the property until they have been notified that the tenant has vacated the property.
This avoids the transfer being registered and the tenant remaining in occupation after transfer.
The parties must ensure that the dates of occupation in the various subject agreements are the same.
If these dates don’t coincide, then one of the parties may be left without accommodation for a period of time. They should have an understanding of both agreements in order to prevent such a scenario from happening.
Occupation clauses can be tricky and do often give rise to disputes if not formulated correctly and so the parties should seek advice when in doubt.
An Offer to Purchase should protect both the Purchaser and Seller by setting out the rights and obligations clearly. Contact us if you have any uncertainty.
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