While the sale of a property should normally be a straight-forward transaction there are circumstances that may conspire to hold up the process and when this does happen then occupational interest falls due and must, most often, be paid by the buyer who may have already moved in.
In some circumstances the seller is the one who has to stay on for a bit longer (perhaps a new home is not complete or another property is still occupied) but if this is the case then the seller will be required to pay occupational interest to the buyer.
In simple terms occupational interest is like paying rent and all deed of sale agreements contain a clause that sets out what amount of money will be paid if the seller is unable to vacate the premises or if the buyer is able to take occupation of them.
Lanice Steward of Anne Porter Knight Frank says that occupational interest should be calculated on the price the home sold for at an interest rate that is between 1% and 2% below prime. She says that the amount might be higher than the new owner would actually pay, the reality is that the final payment is being held back anyway, making the arrangement equitable.
“Occupation prior to transfer should only be allowed if the buyer can produce a bank guarantee for the purchase price of the house because it is extremely difficult to force the buyer to move out if there is a dispute,” she says.
Referring to a recent court case (SM Fraser vs Counterpoint Furnishers) Steward says that the buyer paid a deposit of R2,4-million and undertook to provide guarantees within 30 days as provided for in the deed of sale.
“The buyer defaulted and could not produce the guarantees so the seller took the buyer to court to claim interest for the intervening period and the court ruled in the seller’s favour, ordering the buyer to pay R215 000 for the outstanding occupational interest,” she says.
Steward says that in most evictions, the courts tend to favour the person being evicted but in the case of a property sale, the courts recognise that property is an asset class of its own and the owner is entitled to income from that asset.
“Attempts are often made to reduce the amount of occupational interest charged for a property but if the matter does end up in court – and it is stipulated in the deed of sale – then the courts will rule in favour of the seller unless there are exceptional circumstances.
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