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Fully understanding the occupation and possession clause in your deed of sale

When you enter into an agreement of sale of a property, it is important to understand the meaning of all the clauses contained in such agreement, especially the clauses relating to occupation and possession. It often happens that parties enter into an agreement without having fully informed themselves of these clauses and its consequences. This could potentially cause a dispute between the parties at a later stage, which could have been avoided.

There is a stark difference between possession and occupation of a property, in that the two terms have different consequences.

Possession is when the property has become your property, when the property has been registered in your name, and the transfer is complete.  The Deeds Office records then reflect you as the rightful owner of the property, and all requirements of the agreement of sale have been met. You are now liable for all the expenses pertaining to the property as the legal owner, including rates and taxes.

Occupation, on the other hand, takes place in two instances:

  1. When the vacant property is not yet transferred to your name, but there’s an agreement of sale between the Seller and the Buyer. The Buyer can then take occupation of the property, as agreed upon in the agreement of sale and the Buyer will be liable to pay occupational rent to the Seller until the property transfer to the Buyer if complete; or

 

  1. When you take occupation after the transfer has been finalised and the key has been handed over.

In both instances, the Buyer is liable for all expenses associated to the property. If you wish to make alterations/changes (i.e. put in a pool), it would be recommended that you wait until registration has been finalised, as there is a chance that the Seller may very well cancel the agreement of sale, leaving you with wasted costs and a potential dispute about improvements of the property.

 

“Possession and occupation” subject to existing tenancies

There is a possibility of parties entering into an agreement of sale of property that has an existing Tenant. Possession can be subject to the rights of any tenant in terms of any lease agreement. This is when the property is transferred to your name with the tenancy intact. In that case, the new owner inherits both the benefit and the risks of the tenancy.

This is a common occurrence in practice. Parties can conclude an agreement of sale with a clause that the Buyer will have possession and occupation of the property that is subject to the tenancy. This will be contingent upon registration of the transfer on a specific date.

The question of what happens when the transfer date of possession and occupation does not coincide with the date of registration, often comes up. Transfers are dependent on the Deeds Office and do not usually go through on the precise date desired. Then, if the date of possession and registration is not the same, who inherits the risk and benefits of the tenancy?

The agreement can, for example, state that the transfer will take place on the 12 February 2024, as will occupation. However, transfer could possibly take place on a later date and the delay could be out of both parties’ control. If the date of possession and occupation does not coincide with the date of transfer, the Buyer can then take possession and occupation of the property and inherits all the risks and benefit of the property including its rental income, from the date in which they occupy the property until the property is legally transferred and registered to their names.

Although not a duty, it is good practice for the Estate Agent and the Conveyancer involved to ensure that the parties understand this clause and ensure that, after the transfer is finalised, the occupational rent is paid to the entitled party. Using the abovementioned example, pro rata rental income must be paid to the Buyer by the Tenant, for the period from occupation of the property.

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