Occupation vs Possession

In the Transfer process there are common misconceptions between the two terms namely Possession and formal Transfer, but we need to bear in mind that there are in actual fact three distinct events in a transfer (not just two), each with important legal implications:

* Occupation (physically moving in);
* Possession (risk of accidental damage or loss, as well as responsibility to maintain,  passes to the possessor who also becomes entitled to the benefits of the property, such as rental income, etc.);
* Transfer (transfer of ownership is registered in the deeds office).

The following example will illustrate the relevance of the concept “possession”:

S sells a house to P on 1 January, for R5 million. The contract stipulates that occupation and possession will pass to the purchaser on 1 March and the transfer date is agreed to be 1 April. (In the Western Cape the date of transfer is pre-agreed, while in most other provinces, to my knowledge, the custom is to simply register the transfer as soon as possible).

The house burns down on 10 March (through no fault of the purchaser), shortly after the purchaser moved in – this is after occupation and possession passed to the purchaser, but before transfer. Who will bear the risk of the loss? The Purchaser is in possession, so is it his loss? Or is it the loss of the Seller? The law is that he will now have to take transfer of the razed plot and still pay the R5 million. Hopefully he was insured.

The end result would have been very different if possession was addressed differently in the contract. If the contract stipulated that possession only passed on transfer, then in the above example (the house was destroyed before possession passed to the purchaser) the Seller would have to bear the loss. The parties would have been released from their respective obligations under the contract, because performance became impossible (one exception, where the Purchaser is in mora).

I noticed that some people tend to equate occupation with possession, if the wording of their standard contracts is anything to judge by. This could add to the confusion. Your contract should generally stipulate that possession shall pass on transfer.

If the parties specify a date for possession in the contract, that date prevails. If the contract says nothing about possession, then the law takes over and sets the date. The law says possession passes to the Purchaser when the “sale becomes perfecta”. In practice this more or less means the moment that all suspensive conditions have been met.

The safest and most logical way, given practical considerations, is to stipulate that possession will pass on transfer. Link possession to transfer, not to a stipulated calendar date, unless there are good reasons for it. Or, if possession is to be passed to the Purchaser sooner, make him aware of the implications and advise him to insure against the risk.

In attempting to equate possession with transfer, however, some contracts often use wording that could have unintended possession related consequences. 

Example contract stipulates: 

Occupation on 1 March. Transfer to take place on 1 APRIL or as soon as possible thereafter; possession to take place on 1 April. The intention is to link possession with transfer, which is sound practice, but in reality it is linked to the date of 1 April.

What will happen, given this wording, if the transfer is delayed and will only be ready to be registered on, say, the 7th of April, but the house burns down on 2 April? It will  be the purchaser’s loss – a result not foreseen by the parties and possibly unfair. 

The moral of the story? Use the correct wording: Link possession to the event of transfer, not to the calendar date which has been stipulated as the transfer date. A fine nuance, but important.

It is clear that improper drafting of clauses such as this can be costly, therefore choose your Property Practitioner and Conveyancing Attorney properly.

Hannelie van Tonder

Attorney / Conveyancer / Notary

Fuchs Roux Inc

info@frlaw.co.za