|
Early possession is risky
07/08/2007 The Star
ARTICLES OF LAW BY BHAG SINGH
Early occupation of a house – that is, before the buyer has fully settled
the balance of the purchase price – can be disadvantageous if the deal goes
sour.
THE owner of a vacant house says that he has a buyer at an agreed price but
the buyer wants to move into the house immediately after the Sale and
Purchase Agreement (S&P) has been signed and the initial deposit paid.
Such an arrangement may initially appear mutually beneficial. An otherwise
empty house now helps to lessen the buyer’s possible inconvenience as well
as provide a financial incentive for both buyer and seller. But should the
owner agree to this request?
The purchase of a house is not like the purchase of goods over the counter,
where the transaction is often carried out by the handing over of the goods
in exchange for the payment, unless there is an arrangement for deferred
payment.
The sale and purchase of a house, however, involves different considerations
– it involves a large sum of money and it takes some time to complete and
conclude the transaction.
It is common to agree that the purchaser will pay 10% of the purchase price
on signing the agreement and settle the balance within 90 days, with a
permitted extension of 30 days.
The common practice is for vacant possession of the house to be given to the
buyer only upon the balance purchase price being paid or at least its
payment affirmatively assured.
In the situation being addressed, the buyer is staying in a rented house
where his tenancy is coming to an end. If he can move into the new house
immediately, he will avoid the inconvenience of having to move into and rent
a house for a short period as well as save on expenses.
However, there is a need to be cautious because once the buyer has moved in
with a view to buying the house, there may be complications if a dispute
arises and the deal is, for any reason, not completed.
If this happens, the buyer may refuse to move out. This will create problems
for the owner, especially if he wishes to urgently sell the house to another
party.
If such possession is allowed, the basis on which the buyer is permitted to
occupy and take possession of the house must be clearly defined and the
rights created and obligations arising clearly understood by both parties.
It would be in the seller’s interest to clearly provide that the buyer is
occupying merely as a licensee or a tenant, at most, until the period when
the sale is completed or when the buyer’s interest in the land crystallises.
This must be clearly appreciated and understood by the purchaser so that, if
for any reason the sale is not completed, then the buyer will have to
immediately vacate the house upon his being so notified.
Even otherwise it could be provided that any breach on the buyer’s part
which terminates the S&P will also trigger the termination of the agreement
to occupy without the need for any further notification whatsoever.
The owner can further strengthen his situation by stipulating the amount
that is to be paid for such occupation if the S&P is terminated for whatever
reason. The amount decided on can serve as a deterrent to the house buyer
wanting to stay on.
The seller therefore needs to protect his interest, in giving possession, by
making it very clear that the buyer will not be entitled to stay on unless
the owner grants him a tenancy on mutually agreed and acceptable terms
thereafter.
There are risks for the buyer, too. Such a buyer is naturally inclined to
view himself as a person to whom the house will eventually belong. He may
feel that he is already the owner of the house. However, until he fulfils
his obligations, his claim to ownership is still incomplete.
Many a buyer who goes into occupation in such circumstances forgets that
events can take place which result in the agreement being terminated. It is
not advisable to assume that all will be well in the end or carry out
renovation works on the property and incur expenditure.
The transaction may be aborted in the end, for different reasons. The
purchaser may find his loan application rejected. If this happens, then,
unless he has his own funds, this will lead to the seller terminating the
agreement and the purchaser even losing the deposit paid.
Or it could be that there is a restriction against the transfer of the
property so that the consent of the State Authority is required in order for
the land to be transferred. Such consent may be refused, thus frustrating
the agreement.
When this happens, the purchaser’s entitlement to stay on the property will
immediately cease, leaving behind any improvements and renovations which he
had carried out, without any right to be reimbursed. So, it is prudent for
the buyer not to carry out any improvement on the property until the sale is
completed and the house is registered in his name.
When a property is purchased, attention should be given to structure the
transaction in an adequate manner. The seller and the buyer must clearly
understand the provisions and ensure that their obligations are met.
|
