Buying a property off-plan and occupational rental

Buying a property off-plan and occupational rental

Off-plan property developments have become popular with property purchasers.  Buyers choose their properties from plans, elevations and computer graphics, and must exercise their imaginations to envisage the final units.

There is a small element of risk attached to buying off-plan, and units are usually offered at low prices to reduce risk.  As the project nears completion, prices start to increase as buyers can easily see what the finished product will look like.  The property usually appreciates in value before transfer and also saves the buyer transfer duty.

An artists’ impression or architects plan is generally used to present what the units will look like on completion.  It must be noted that this is not a guarantee of what the property will look like, but is a possible image from the conceptualisation phase and the final product may vary from these images.


Once it can be seen that there is construction on site, the unit prices usually increase.  Developers usually present a show unit which potential purchasers can view.   The unit price also then increases once the development is sold out, as buyers are no longer purchasing solely from plans.

The Housing Consumers Protection Measures Act established the NHBRC – National Home Builders Registration Council, to protect the consumers rights. Builders are obliged to be registered with the NHBRC before they can commence any building operations. Approved building plans must be submitted along with a specification schedule of the work to be done and the materials that will be used to get a Certificate of Enrolment for each unit. A copy of this NHBRC certificate, the contractor’s NHBRC enrolment form and a copy of the approved plans must be given to the purchaser on completion of the unit.

Transfer duty is waived when buying off-plan though the buyer is still liable for conveyancing fees. If bought during the development phase, the developer will levy VAT on the purchase instead of the buyer paying transfer duty.

A common problem arises with many first-time off-plan buyers, who don’t understand the concept of taking possession of their new property and taking occupation, nor of the provisions in a sale agreement for the payment of occupational rent.  Shaun Rademeyer, CEO of BetterLife Home Loans says “Actual possession only happens when the transfer of ownership from seller to buyer is officially registered in the Deeds Office. However, buyers are sometimes allowed to occupy their new home before the transfer process has been completed, and this can lead to some confusion”

While the developer and buyer have every intention occupation of the unit on a specified day, as they believe transfer will have taken place by then – the Deeds Office may have very different ideas. Delays with the transfer process are not uncommon for a number of reasons and no party can commit to when transfer will be granted.

Occupational rent and how it’s calculated

The development sale agreement, generally provides for unit buyers to take occupation of their unit once a practical completion certificate has been issued, and once their bank provides “guarantees” to the transferring attorney that the purchase price will be paid. The buyer, however does not actually own the property at this stage and will generally have to pay occupational rent to the seller/ developer for the time from date of occupation and the actual date of formal transfer.

The amount of occupational rent charged is usually guided by the average rental in the relevant suburb. This is not an ad-hoc figure – but one that should form a realistic expectation. All parties should agree on the amount as it may have severe financial implications should the transfer be delayed. Occupational rent for sectional title development purchases is usually calculated as a percentage of the purchase price and 1% is common.

The developers of Heritage Estate charge a monthly occupational rental of 0,6% of the purchase price and have waived the general levy until such time as transfer takes place. Rates and property taxes are the responsibility of the developer, unless stated otherwise in the sale agreement, while water and electricity are normally for the buyers account. The seller / developer must keep up the homeowner’s insurance (HOC) until the date of transfer – even if the buyer has already taken occupation and is living on the property. This will ensure that the home is covered in case of fire, flood, wind or any other disastrous damage that might occur.

The payment of occupational rent is a standard clause in almost every property sales contract. Occupational rent is also known as occupational interest, designed to protect both the buyer and the seller. It can apply to freehold and sectional title purchases, whether you’re buying from an individual or off-plan from a developer.

Occupational rent is similar to a tenant and landlord contract and allows for use of the unit until formal transfer. The differences between occupational rent and ordinary rent lie in the expectation of a change of wnership, and that it occurs as the result of a sale. Artists impression The Firs – Unit 21

Occupational rent may be payable over a period of time before transfer takes place, as a result of delays resulting from Council issues or developer complications. Occupational rental is due and payable regardless of whether the buyer decides to take occupation or actually move in, but is determined from the time the practical completion certificate is issued.

South African legislation protects and is in favour of the purchaser. All monies or funds from the sales of units are held by designated transferring attorneys – Calteaux and Partners for Heritage Estate. The monies are invested in an interest-bearing account until such time as the transfer of units takes place. Mortgage bonds are also only paid out on transfer.

This is a safety net for the purchaser as, in the event of a developer not delivering in accordance to the contract, all funds will be refunded to the purchaser by the attorney assigned to an account.