Occupational Rent as the buyer
This article is short and sweet. What is occupational rent? Imagine this situation, you’re buying a residential property, moving out from your currently leased property. You’re about to become a proud home-owner. Now here is the issue, the property has not yet become yours. Meaning the title deeds have not yet been penned in your name and this could take months. You do not yet own the property and the seller of the property is still in possession of the said property. How do we change this situation around?
Well, you could negotiate to take possession of the house and move into the property pending transfer of title. Remember, you do not yet own the house so the current owner will expect something in return for their troubles, maybe they were still looking for a different property to move into. Enter occupational rent.
Occupational rent is an amount paid by the prospective owner of a property to the current title deed registered owner of the property pending title deed transfer or registration. Occupational rent is very similar to regular old rent, in fact the amount is often the value of rentals in the surrounding areas or 1% of the property value. The only difference between rent and occupational rent is that there has been a property deal that necessitated it, a property sale for example.
Why the buyer may consider occupational rent
For the buyer, occupational rent discards the need to pay rent elsewhere. It also allows the buyer to begin planning for their remodelling/renovation plans while living in the property. Albeit it should be said, as ownership does not yet vest in the buyer, they are not allowed to make modifications to the property, yet. One biggie for serial home owners is that as a buyer they can take advantage of occupational rent to open their old property for viewing and quite possibly an easier selling process. Imagine having to move twice because you sold your current house to someone else while you can’t yet move into your dream home, what a drag!
Sellers can use occupational rent too
Let’s step out of the buyer’s shoes now and step into the seller’s boots. We’re moving to London and are currently in the process of arranging our travel papers. As part of this move, we decided to sell our property for some much-needed cash reserve, London is expensive you know. We’ve sold the property but expect our papers to be ready a few months after transfer of title. That means we could be in need of accommodation when that time comes along. Again, enter occupational rent to the rescue.
With an occupational rent agreement, we could remain in possession of the property long after we lose ownership of the property. Did you notice the difference this time around? Instead of negotiating to occupy the house before the transfer of title, we’re negotiating to continue occupying the house after ownership is vested in the buyer. No need to sleep at the airport now.
Why the seller may consider occupational rent
Besides making sure we have a roof over our heads until we find alternative accommodation, occupational rent can be used to ease our burdens if the house we’re selling is not our primary residence. Homes after all can be a hefty cost centre if not managed properly.
Until the date of transfer, as the owner of the property we’re still liable to rates, taxes, bond payments and the general upkeep of the property. For sure we don’t want these to start eating into our profits out of the sale, right? Well, let’s invite the buyer to move in to the property on an occupational rent agreement. Their rental payments will allow us to subsidise our owner burdens until ownership is transferred. It can also be a way of getting some cash flow from the property before disposal.
A tip to remember
When discussing occupational rent make sure you know the difference between ownership and occupation. The difference is key in understanding how occupational rent works. I’ll make a blog post on this, for now thanks for reading this. Until next time, you can view all my blog posts here, click here.
This is indeed a masterpiece. I love the idea of occupational rent.