Occupation/Possession?

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