There are a few points here that need to be addressed as
the issue of occupation is often a thorny one. Just as lease contracts of immoveable
property do not have to be in writing, so the issue of occupation does not have
to be settled in a sale contract. It should be, nonetheless, to prevent
complications at a later date.
Key Occupation Questions:
a.
Is an occupational rental amount clearly
stated?
b.
Is a date of occupation clearly stated?
c.
When is payment to be made?
d.
To whom should the payment be made?
e.
Should material improvements be allowed during
occupation?
The Date of Occupation
A very important principle regarding the date of occupation
is to ensure it does not occur before all suspensive conditions to a
contract are fulfilled. Wherever possible, the Buyer should not be given
occupation until the whole purchase price (including cash deposits and loan
guarantees) as well as transfer costs have been paid or secured.
An example is a where the signatory to the contract for the
Buyer was a nominee for a CC to be formed and, unknown to the Agent, he had
recently been declared insolvent. Furthermore, no deposit had to be paid and
the Buyer was given more than three months to provide guarantees for the full
purchase price without any mention of a bond to be granted. On top of this, the
nominee was given occupation immediately with the right to make alterations to
the property without the Seller's consent!
Without any rental being paid, he had already started
drilling a borehole which cracked the foundations of the house next door. No
rental was ever paid and effective steps had to be taken to cancel the sale. It
is essential not to let the Buyer take occupation while there remains any
uncertainty about his ability to fulfil all the terms of the contract.
Evicting a Buyer in occupation, who is
also in default, is not that easy as most contracts have breach clauses
requiring the Seller to first give the Buyer at least seven days’ notice to
remedy the beach before the sale can be cancelled. The Seller then has to issue
and serve a summons for eviction and, provided the local sheriff is helpful,
this can be done almost immediately. Nevertheless the Buyer is given a further
five days grace to respond before judgment can be taken. If he defends the
action, a further delay will take place while the Seller has to make an
Application for Summary Judgement to get his required relief. Even then, if the
Buyer can convince the Court he has some sort of defence to the action, he will
be allowed to defend it and the case could go on for months.
Very often a Seller sells his property only to a purchase
another one. Usually the transfers can be registered simultaneously but not
always and in such cases it is the Agent's duty in the second sale to ensure
the date of occupation will coincide with the date in the first sale. It often
happens that they don't and this is invariably highly embarrassing and
inconvenient for the client who obviously will not want to keep his furniture
in storage or move in to other premises temporarily. This causes a Seller a
severe disservice in such cases.
Occupational Rental
It is vital to ensure that at least the first month's
occupational rental is actually paid before a Buyer is allowed to take
occupation. I believe, although this is not the general practice, that a
deposit of one month's rental should also be paid as is the practice for leases
of property. This will give the Seller time and security to act if the next
month's rental is not paid and will also protect him somewhat if the sale falls
through and the Buyer vacates, leaving a damaged premises behind.
The most common form of determining occupational rental is
to take it monthly at about 0.75% of the purchase price. Thus, a house selling
for R800 000,00 will have a rental of R6 000,00 a month. In times, past occupational
rental was usually set at 1% of the purchase price, but even then, it was
usually well below the tenancy rental-value of the property. With higher
property prices and generally lower interest rates today, 0.75% is usually a
fair reflection of the property's real rental value.
It is essential to be careful at this point, in particular,
not to allow a Buyer too low a rental even if the Seller is happy with it. Very
often Buyers paying low rentals will deliberately delay the transfer to get the
maximum benefit from the advantage they enjoy. I have had personal experiences
of Buyers who have said "Oh, I'm in no hurry to take transfer - I am
paying a low rental" and, without fail, they delay signing
documents, paying costs etc., to drag the matter out as long as they can.
Try and avoid low occupational rentals wherever you can.
Place of Payment
Without hesitation, I recommend that occupational rental be
paid to the Agency or Attorneys appointed to do the transfer, with the specific
instruction that it thereafter be paid into the Seller's bond account.
Arrangements are often made for the Buyer to pay the rental directly to the
bond account, but this practice should be discouraged as a failure to make
payment is not always quickly detected by the Seller.
Actual Occupants of the Property
It is important to ensure that the Buyer actually takes physical
occupation of the property on the due date and the occupation clause
in your contract should stipulate this. Very often Buyers have no objection to
paying occupational rental but don't move in immediately for various reasons.
This exposes the property to vandalism, break-ins, squatter-occupation
and the like. The contract should also hold the Buyer liable for such damages
if they occur during any period when he has failed to take occupation. It is
also essential to be careful to ensure that it is the Buyer himself who takes
occupation and not remote members of his family or some other party. It is also
wise to stipulate in your contract that the Buyer is obliged to take occupation
on the due date. Far too often property Buyers don't move in, and their Sellers
are left with vacant properties and no rental being paid.
Occupation prior to registration of transfer does not
create a tenancy and most contracts state this specifically. A Buyer may
not sub-let the property, nor can he rely on the laws of tenancy if he is
required to vacate the property immediately upon cancellation or non-fulfilment
of any conditions. The provisions of the Prevention of Illegal Eviction Act of
1998 do not apply to lapsed or cancelled sales where the Buyer is in occupation
and must move out. A straightforward action for immediate eviction of the Buyer
may be brought before the High Court.
Failure to Pay Occupational Rental
This is all-too common a problem in an age where a general
"culture" of non-payment has become prevalent. Failure to pay rental,
depending on the circumstances of the sale, may be a material breach of
contract and the sale can be cancelled if the Buyer does not remedy his
breach after proper notice has been given to him. It must be mentioned,
however, that a recent High Court decision decided that where occupation was
not a crucial term of the sale, the Seller will not have a right to cancel it but
must institute an action through the courts for the recovery of the rental due.
A common tactic employed by Buyers these days is to
withhold payment of occupational rental because of certain defects they
discover on taking occupation. The discovery of latent defects by a Buyer for
which a Seller may be responsible or even the refusal of a Seller to repair
these at his own expense, does not constitute a breach of contract but the
refusal of a Buyer to pay rental in such circumstances, does! There are other
means available to settle defects issues, but a Buyer must be advised to
keep paying rental - especially as the Seller probably needs it to keep his
bond account up to date and a foreclosure could follow if he cannot pay his
instalments.
The only occasion where a Buyer is justified in making
deductions from his rental is where he does not obtain the full use of the
property, for example where the Seller has left the garage cluttered with
his rubbish or where an unforeseen water-feature has suddenly appeared in a
lounge in the rainy season making it unusable.
Existing Tenants of a Property
It is a standard principle of Roman-Dutch law that a tenancy
goes before purchase (the old Dutch expression is huur gaat voor koop).
Thus, if a property is let to tenants, their contract will supersede any
agreement made between the Seller and Buyer. It is essential in such cases to
ascertain what tenancy agreement exists and to ensure that the tenants will
vacate the premises once their lease expires. It is also imperative to disclose
to the Buyer the existence of the tenancy and to record it in the sale
contract. The Buyer must acknowledge his awareness of the lease agreement and
the date on which it expires.
Improvements to the Property
Buyers quite often request permission to make alterations
and improvements to the property during occupation prior to registration. As
far as possible, this practice should be discouraged as both the Seller
and the Buyer could be prejudiced if things go wrong. Certainly, no right to
make improvements should be allowed until payment of the purchase price and
transfer costs has been fully secured.
The Seller can be prejudiced if the sale falls
through and he cannot regain possession of the property in the condition it was
in prior to the sale. Many of the "improvements" Buyers wish to make
can often be just the opposite and spoil the symmetry, appearance or purpose of
habitation of the premises. This is especially so if the improvements have not
been completed or the Buyer has only pulled down existing structures and
features without commencing the proposed new renovations. In such cases, the
Seller stands only to lose from any interference by the Buyer in the buildings
on the property. Always remember that, before any improvements can actually be
made, the existing structures have to be damaged
in some way first.
The Buyer will be prejudiced if the sale should fall
through because of the Seller's default. If the Seller should be declared
insolvent after the Buyer has spent thousands of Rands improving the property,
or if a Bank should sell the property in execution, the Buyer will stand little
chance of recovering his investment in the property. A Bank will be only too
happy to see a sale in execution through if it knows the quality of the
property has improved sufficiently to ensure a resale covering the amount owing
on the existing bond.
If a sale should lapse through a default on the Seller's
part, in particular where the sale became voidable by the Buyer for any reason
(such as a material misrepresentation by the Seller as to the extent of the
property or some similar factor), the Buyer will be entitled to reclaim
expenses laid out for improvements, even where these were done only with the
Seller's tacit consent. This means that where the Buyer had no contractual
right to make improvements but did so with the Seller's full knowledge and
without objection by the Seller, the Seller will be obliged to compensate him
for the expenses he has incurred.
It is obvious that the right to make improvements prior to
registration should only be allowed in exceptional cases where the sale is
known to be sound and the Buyer can be explicitly trusted. Once in occupation,
a Seller does not have much control over what a Buyer does to alter and
"improve" the property and he should not be allowed to mess around
with the structures prior to registration. He should, however, be given the
right where appropriate to replace worn items and structures with entirely new
ones where he is prepared to do this entirely at his own expense.
CREDIT:
Property
Law Publications
John
Gilchrist
082 904
1300
