For many property buyers, the most exciting moment is getting the keys and moving into their new home. But what happens when the buyer wants to move in before the property has officially been transferred into their name?
Early occupation can be a practical solution for both buyers and sellers, but it is important to understand that occupation and ownership are not the same thing. Until transfer is registered at the Deeds Office, the seller remains the registered owner of the property.
So, while early occupation can make life easier, it can also create financial, legal and practical complications if the arrangement is not properly agreed upfront.
What is early occupation?
Early occupation occurs when a buyer moves into a property before registration of transfer has taken place.
The arrangement is voluntary. A seller is not obliged to allow a buyer to move in early, and a buyer does not have to accept early occupation.
Where early occupation is agreed, the buyer will generally pay the seller occupational rent for the period between taking occupation and registration of transfer. The amount should be agreed between the parties and recorded in the Offer to Purchase or an appropriate addendum.
But the important point to remember is this:
Moving into the property does not mean that you own it.
The buyer’s perspective
The advantages
You can move into your new home sooner
Perhaps your lease is coming to an end, you have already sold your existing home, or you simply need somewhere to live. Early occupation can avoid the inconvenience of temporary accommodation or having your household goods placed in storage.
It can make the move easier
Instead of trying to coordinate your move around the exact date of registration, early occupation can give you greater flexibility. You can settle into the property while the conveyancing process continues.
You can avoid paying rent elsewhere
If you are currently renting, moving into your new property early may mean that you can stop paying rent on your previous accommodation sooner. However, this saving needs to be weighed against the occupational rent payable to the seller.
The disadvantages
You are paying to occupy a property you do not yet own
Occupational rent is an additional cost before you become the registered owner. If the transfer takes longer than expected, you may end up paying occupational rent for longer than anticipated.
Transfer dates can be affected by matters such as municipal clearances, financing, compliance requirements and Deeds Office processing.
You cannot treat the property as though it is already yours
Although you may be living in the property, you generally cannot make alterations, renovations or other significant changes without the seller’s consent.
That dream kitchen renovation may therefore need to wait until transfer has taken place.
What happens if the sale does not proceed?
This is one of the most important risks to consider.
Early occupation can create a complicated situation if the sale subsequently falls through. The buyer may already have moved in, while the seller remains the registered owner. Resolving possession and any financial or property-related disputes can then become considerably more complicated.
Who is responsible if something goes wrong?
A burst geyser, storm damage, a broken appliance or damage caused during the occupation period can all raise questions about who must pay.
The answer will depend on the terms of the agreement, particularly provisions dealing with risk, maintenance, insurance and occupation. These matters should therefore be clearly addressed before the buyer moves in.
The seller’s perspective
The advantages
You may be able to accommodate the buyer
Allowing early occupation can make the transaction more convenient for a buyer who urgently needs accommodation. It may also help the seller meet a buyer’s preferred moving date.
You can vacate the property sooner
A seller who has already moved into another home may prefer not to have the old property sitting empty while waiting for transfer.
Having the buyer occupy the property can also reduce the practical burden of maintaining an empty home.
You receive occupational rent
The seller remains the owner until transfer and, where agreed, receives occupational rent from the buyer for the period during which the buyer occupies the property.
The disadvantages
You remain the registered owner
This is perhaps the most important consideration for sellers.
Even though the buyer is living in the property, ownership has not yet transferred. The seller therefore needs to understand exactly what the sale agreement says about responsibility, risk, insurance, maintenance and damage during the occupation period.
The sale could still be delayed
The buyer may have moved in expecting transfer to happen shortly afterwards, only for the process to take longer than anticipated.
Current industry commentary has highlighted municipal and conveyancing delays as a reason why early occupation can sometimes last considerably longer than the parties initially expected.
The situation can become particularly difficult if the sale is cancelled
If a buyer has already moved in and the sale subsequently fails, the seller may have to deal with recovering possession of the property as well as resolving the financial consequences of the failed transaction.
This is very different from simply cancelling a sale where the buyer has never taken occupation.
So, is early occupation a good idea?
There is no one-size-fits-all answer.
For a buyer, early occupation can provide welcome flexibility and avoid the cost and inconvenience of temporary accommodation. For a seller, it can make the handover process easier and provide compensation through occupational rent.
But both parties need to remember that the keys can change hands before the title deed does.
The safest approach is to agree on the details before occupation takes place and ensure that they are properly recorded in the Offer to Purchase or a suitable written agreement.
At a minimum, the parties should understand and agree on:
- The exact occupation date
- The amount of occupational rent
- When the occupational rent becomes payable
- Who pays water, electricity and other services
- Responsibility for maintenance and repairs
- Who carries the risk for damage to the property
- Insurance arrangements
- Whether the buyer may carry out any work or alterations
- What happens if transfer is delayed
- What happens if the sale is cancelled
- What happens if transfer takes place earlier than anticipated
It is also important to establish what happens to occupational rent if transfer occurs earlier or later than expected. These provisions should not be left to an informal conversation between the parties.
The golden rule: get it in writing
Early occupation does not have to be complicated, but an informal handshake is not enough.
The buyer, seller and relevant property professionals should have a clear understanding of the arrangement before the buyer takes occupation. The conveyancer should be involved in ensuring that the contractual provisions properly address the circumstances of the particular transaction.
Ultimately, early occupation can work well for both parties when expectations are clear. The problems tend to arise when everyone assumes they understand who is responsible for what, only to discover later that they had very different expectations.
Before handing over the keys, make sure everyone understands what those keys actually mean.
Ownership follows registration. Occupation can come earlier. The distinction is an important one.