OCCUPATION, POSSESSION, TRANSFER AND THE PASSING OF RISK IN A PROPERTY TRANSACTION

The terms “occupation”, “passing of risk”, “possession” and “registration of transfer” in a deed of sale have important and different legal consequences for the parties to the contract. The parties should make themselves aware of these consequences before they enter into an agreement.

Occupation

The exact date of registration of a transfer of immovable property is difficult to determine due to the number of variable factors that influence such registration. Therefore, agreements for the sale of immovable property usually contain an occupation date whereby the parties agree when the seller will move out and when the purchaser can move into the property. This is called the “occupation date”. Occupation before registration is often necessitated by the personal circumstances of the parties that require them to occupy or vacate the property before registration of transfer, for example expiry of a lease agreement or a limited window to arrange for the moving of their households. The purchaser will usually pay the seller occupational interest or rental. The occupational interest is calculated monthly, pro rata in relation to the date of registration or transfer of ownership. In this instance occupation is taken in anticipation of transfer of ownership and does not necessarily coincide with the date of transfer of ownership or the date of possession.

Transfer

Transfer of ownership in immovable property is conveyed by means of a deed of transfer drafted by a Conveyancer and attested or executed by the Registrar of Deeds. On the date when the Registrar of Deeds signs the deed of transfer the immovable property is registered in the name of the purchaser and he or she becomes the new owner. On that date the usual incidences of ownership, such as the benefit and risk in the immovable property, pass to the purchaser unless otherwise agreed.

Possession

Possession is the factual and mental domination of a thing by a person.

Although possession appears to be the same as ownership, it is not the same thing in law. For instance, as stated before, in order to pass ownership in immovable property there must be registration of a deed of transfer by the Registrar of Deeds. However, possession is associated with the legal risk of loss or destruction of the property and the rights to enjoy the benefit associated with the property.

If the parties agreed that possession would pass separately from and before registration of transfer of ownership, this can be interpreted as the moment when the purchaser becomes responsible for rates and taxes, maintenance and other expenses concerning the property, and the moment from which he bears the risk in the property. It is also the moment when the purchaser becomes entitled to fruits of the property. Although there may be circumstances where the parties intended that the risk and benefit of the property are passed to the purchaser before transfer of ownership, this may be an unintended consequence if the occupation clause also refers to the granting of possession. Because some agreements equate occupation and possession, there is a real risk of a purchaser being put in a difficult position if he provided that insurance would commence only from date of registration of transfer of ownership.

Because of the assumption of risk in such an instance, it is suggested that a purchaser be forewarned that he or she must take out insurance in respect of damage or risk to the property before the actual passing of ownership.

Parties should also be made aware of the common law so-called “risk rule”. In normal circumstances the owner of property has to bear the risk of damage to the property through no fault of another, for instance due to flooding or earthquakes. However, common law holds that the risk in the property passes to the purchaser after the sale is perfecta. So, if the property sold is damaged or destroyed through no fault of the seller (and even whilst it is still in his possession) the purchaser is not relieved of his duty to pay the purchase price. For a sale to be perfecta, the following requirements must be met:

• The price must be fixed,

• The subject matter must be ascertained, and

• All suspensive conditions must be fulfilled.

The benefit in the property sold follows the risk and, from the date that the risk passes, the purchaser is entitled to any fruits or other advantages of the property.

In the sale of immovable property, the date on which the contract becomes perfecta and the date the transfer of ownership takes place may be far removed from each other. Therefore, the purchaser may have to bear the risk of the property for some time.

The “risk-rule” is one of the terms of an agreement implied by law and can always be varied by the contracting parties. It has therefore become practice to insert a clause in the agreement to the effect that the risk and profit in the immovable property only passes to the purchaser on the date the purchaser acquires ownership.

It is recommended that the parties verify, before signature, when the risk and benefit of the immovable property will be passed from the seller to the purchaser. It is the responsibility of the parties to make sure that the clauses in the contract that regulate the passing of risk correspond with their intention.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)