Property News & Updates

6 of 98

THE DISTINCTION BETWEEN OCCUPATION AND POSSESSION

21
May
Category Updates

The Distinction Between Occupation and Possession and its Relevance in a Property Transaction. 

 

The distinction between occupation and possession is often misunderstood. However, there are important legal differences between these concepts, and you should ensure that you are aware of these to avoid uncertainty and issues later in the transfer.

 To understand these concepts, it is important to consider the three distinct stages in a transfer;

 

  1. The actual transfer- ownership is registered in the Deed’s office;
  2. Possession- the passing of risk and benefits is coupled with occupation. Risk of accidental damage or loss, as well as the responsibility to maintain and repair, passes to the possessor who also becomes entitled to the benefits of the property; and
  3. Occupation- physically moving into the property and simply enjoying the use thereof.

These three stages do not necessarily occur in this order. The relevance of the distinction between these concepts is illustrated in the following example;

A sells a house to B on 1 April. According to the contract, occupation and possession will pass to B, the purchaser, a month later on 1 May; this date is unrelated to date of registration of transfer.

B takes possession and occupation on the agreed date. However, on 10 May, shortly after B has moved in, through no fault of his own, the house burns down.  As B has taken “possession”, he will bear the loss. Legally, B will still need to take transfer of the property and pay the purchase price.

As illustrated in this example, if the purchaser decides to take possession before transfer, he will be liable for any loss associated with the property. It is therefore advisable that in such instances the purchaser should take out his own insurance or have his interest noted on the seller’s insurance.

However, this situation may, and should, be avoided altogether. It is advisable and recommended that possession only be passed on registration of transfer, rather than before. If this had been done in the above example, the seller would bear the loss and his insurance would cover this. This would mean that occupation could still occur at an earlier date, but the passing of risk and benefits of possession would occur later.

Where possession passes before transfer and the property is damaged, any bank who has granted the purchaser a loan on security of the property, will in all likelihood withdraw the grant of the loan as the value of the security for the loan—the property—has been affected. The sale would then collapse and the Seller left with a damaged property which insurance might not cover.

Given this example and these distinctions, we advise that the best and safest option is to always ensure that possession will pass on date of registration of transfer. This will protect the purchaser from risks associated with property ownership until the date on which they actually become the owner thereof and ensures that the Seller is in control of the “integrity” of his asset until ownership passes on transfer.

 

Article by Michael Campbell

6 of 98