An agreement stipulating the details of the use and occupation of a certain premises and all conditions thereof.

Use and Occupation Agreement

What is a Use and Occupancy Agreement?

A use and occupancy agreement, sometimes referred to as a U&O, is a temporary agreement between the occupier and the owner of the property that allows one party the right to use and occupy the property for a set period of time. It is usually put in place if the occupier (buyer) needs to move into the property before ownership can be transferred.

While a Use and Occupancy Agreement can be written in a variety of ways to fit a specific situation, at the basic level it offers someone a license to use a premises. The important thing is that the agreement be written to state that it is not a landlord-tenant agreement, or a lease in the same way a regular rental agreement would be.

The Use and Occupancy Agreement is structured to allow easy removal of the party occupying the premises if the need arises. From a legal standpoint, lawyers will often inform the parties they are representing of the differences between the two kinds of agreements.

While it is best to have a lawyer or real estate agent explain to you the differences between the two, it essentially boils down to the fact that the occupiers are not considered tenants. As such, they will not be granted any tenant’s rights. The agreement solely allows them the right to use the property.

When the Use of a U&O is Beneficial

Traditionally, a U&O agreement comes into play whenever an original settlement date is changed or otherwise delayed. Most often this agreement allows the buyers, who may have already given up their prior property, to use their new home before they officially take ownership. This could mean that they rent the property from the owner for a few days or simply that they move their belongings in beforehand.

Less frequently, it is used similarly to a rent-back contingency. In this case, you would rent the property from the buyers after settlement has occurred in the event that settlement on your new home gets delayed.

How to Create an Effective U&O

• Put it in writing:

This is the most important formality of all. If you are thinking of using this type of agreement during the course of your transaction, put it in writing. Furthermore, it is beneficial for you to ensure that you have a professional, meaning either your lawyer or your real estate agent, draw up the paperwork.

• Set a daily rate:

Consider the agreement to be like rent or a hotel bill. As the owner, it is up to you to choose how you would like to be fairly compensated for the use of your property. However, choosing a daily rate over one flat-fee could have an advantage. In the event that the agreement needs to be extended for a few days, you will know how much you are owed.

• Be specific:

In this case, while you are drawing up the agreement, the more specific you can be, the better. You want to make sure to set a clear length for the agreement, as well as explicit terms on what should happen when it expires.

In addition, if you have any specific guidelines that you’d like the buyers to follow, such as not bringing in handymen during this time period or refraining from making any major changes to the property, be sure to spell those out in the agreement.

• Do the final walk-through beforehand:

Usually, the final walk-through takes place right before settlement so that the occupier can see the condition of the property before they move in. This provides protection when, for example, the stove breaks during the period of the U&O and you need to determine who is responsible at that point.

That is why it is best to have the final walk-through done and signed off on or before the occupier takes procession of the property, even if it is under temporary circumstances. That way, the financial responsibility for the property remains straightforward.

Occupational Rent

Occupational rent is also known as occupational interest, designed to protect both the occupier and the owner.

It can apply to freehold and sectional title purchases, whether you are buying from an individual or off-plan from a developer, and should be carefully considered and negotiated before signing an agreement of sale.

Occupational rent typically comes into play when a buyer moves into the property before transfer and registration has taken place, or a owner remains in occupation of the property for a period after that point.

Essentially, it is a form of financial compensation for the use of a property that the occupier does not own, it is similar to, but not quite the same, as being a tenant and paying rent.

The differences between occupational rent and ordinary rent lie in the expectation of a change of ownership, and the fact that it occurs as the result of a sale.

You need to have the agreement state clearly that you are not agreeing to tenancy, only a temporary occupancy. If you need to remove the occupier from the premises, a clear agreement will make it easier to do so.

You may still need to go through legal proceedings, however, you can also make it clear in the agreement that the occupier will need to pay all legal fees in the event of an eviction.

Additionally, you will need to be thorough in your description of what the occupier is liable for if the property is damaged in any way. It is also a good business practice for the owner to have indemnification language as well. In fact some attorneys will draft a separate indemnification agreement that the buyer must sign.

The common language used by attorneys representing the owner will be something to the effect that the occupier shall indemnify and hold the owner harmless from all loss, liability or damage arising from any alterations, additions, unlawful or improper use, or any nuisance made on the property by the buyers, including their family, friends, relatives, invitees, or visitors, from any carelessness, negligence or improper conduct of any person. Having this kind of language is vital to protect the interests of the owner.