The article referred to on Property24 in WebBytes 026 is with respect, not entirely accurate. The writer correctly emphasizes that there is a distinction between occupation and possession. But my impression is that perhaps the writer/spokesperson now confuses possession with formal transfer of ownership. It is a common misconception, but we need to bear in mind that there are 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". This is how I understand it, and I will be grateful to hear colleagues' comments.

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? Because the purchaser is in possession, it is his loss. My understanding of 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 be very different if possession was treated 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 will be released from their respective obligations under the contract, because performance became impossible (one exception, where the purchaser is in mora).

I noticed that some Cape Town agents tend to equate occupation with possession, if the wording of their standard contracts is anything to judge by. This could add to the confusion. The Gauteng agents by contrast, 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, Cape contracts often use wording that could have unintended possession related consequences. Example: Contract says: 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, I think, 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.

Will other attorneys please add their comments and air their views?

Lizelle Kilbourn
Training Manager
Igqwetha Training Academy
Tel: (021) 406 9100
Fax: (021) 419 7845

Reader Comments:

Danie Meiring 04/02/2005:

Please bear in mind that risk does not always pass on possession, when contract is perfecta. most Cape Contracts determine that risk will pass on registration.

Conveyancer - George 04/02/2005:

I fully agree. I think the author of the aticle on Property 24 confuses the concept of posession and ownership. Ownership is not a pre-requesite for posession. Thus one can be in posession of property without having ownership thereof. Consider the following example as well: A tenant who rents a property from the owner is in posession of that property. If this was not recognised in law, the owner could easily "evict" the tenant by locking the premises (denying him access and posession). The tenant will then not be able to aply for a spoliation order, since spoliation requires posession. From experience the tenant in this example will always be successfull with an application for spoliation if the owner did not follow the correct procedures (PIE act).

Mandy Hamlett 04/02/2005:

If the purchaser is in possession but has not yet taken transfer, how does he insure said property if it is not yet registered in his name. Do insurers make allowances for this scenario?

Norman Ward 06/02/2005:

Regardless if buyer and seller are occupiers or if one or the other uses the house for rental, I would always stipulate the 1st of a calendar month (close to transfer date) for occupation, so one has certainty about moving and no rental income is lost and nobody ends up carrying two properties while one is empty.

Deon Boshoff, Knysna 07/02/2005:

I can unfortunately not agree that, unless specifically stipulated in a contract, upon possession, "risk of accidental damage or loss, as well as responsibility to maintain, passes to the possessor ...". If, in your example, the contract did not specifically provide for risk to pass with possession, then the burning down of the house would be the loss of the seller. I do not need to quote any case law or author as I believe that the above is trite. As regards the "distinction" between possession and occupation, I have always understood that possession would give a person (the purchaser) the right to occupy, but that occupation would be the factual occupying of the property by the purchaser.

Anneliese Hofmann 08/02/2005:

In the case below I am the Purchaser. My agreement of sale contains an addendum that states: "Possession and risk. Possession shall be given by the seller to the purchaser and taken by the purchaser on 3.1.2005 together with vacant occupation. from which date the purchaser shall be entitled to all benefits from and be liable for all risks of ownership in respect of the property including the liability for rates and taxes and other charges or levies on the property from such date. The purchaser undertakes to arrange insurance cover at her own cost." The transfer has not yet taken place and could still take some time (this is a sale out of a deceased estate). I am worried that I am not adequately covered in this instance.

What if the house burns down? Insurance only becomes effective once bond repayments start (after transfer has taken place).I have already had to deal with expenses resulting from a burst pipe two weeks after taking occupation. According to this clause I would am now taking the "risk of ownership", yet the property is not in my name and I have to pay occupational rent. I would really like to hear some advice, how can I protect my interests better - I am a first time homeowner.

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