In almost all instances, sectional title property developers will try to sell out a complete section of their development – and possibly the development as a whole – before they give transfer to the new owners. There are many advantages to the property developer for handing over all transfers simultaneously.
Nevertheless, to ensure that their cash flow is satisfactory and that they repay their bank loan, if applicable, as fast as possible, most developers will insert a clause into the sale agreement which obliges the buyer to take occupation as soon as the developer is ready to handover the unit – and although the new owner may not have taken transfer, he will be expected to pay a monthly ‘occupational rental’, which is usually calculated on 1% of the sales price.
“There is,” says Wayne Albutt, the Rawson Property Group’s Regional Sales Manager for the Western Cape and one of the group’s acknowledged experts on property law, “nothing fundamentally wrong with this arrangement and it is common practice. However, there have been buyers who have objected to paying an occupational rental. In most cases, this results in no sale agreement being concluded and in this situation the developer is still very much in control.”
Albutt says that there is no likelihood of developers, already operating on tight budgets, agreeing to change this arrangement, but, he says, buyers do need to be aware that the payment of occupational rent is common practice. In a small number of cases the transfer will be delayed for longer than originally planned, causing the buyer to pay occupational rent for a longer period of time than he budgeted for. This, says Albutt, tends to happen due to delays at the City Council, or when a developer takes longer to sell all his units than anticipated.
“If you, as a prospective buyer, believe you are on to a worthwhile purchase, I would certainly not advise you to let concerns about occupational rent deter you,” says Albutt, “but you should be aware that this condition of sale is found in most sectional title sale agreements. The good news, however, is that I have never known this to affect the ultimate investment value of the units.”
