Early Possession and Rent-Back Calculator NZ

Updated  Occupation outside settlement needs a written agreement and confirmed insurance. Neither is automatic.
Quick answer 21 days of occupation on an $800,000.00 property is worth $3,682.19 under the interest method at 8.00%, or $2,250.00 at a market rent of $750.00 a week. The gap of $1,432.19 is the negotiation, and the outgoings of $333.70 sit on top of whichever is used.

Occupation outside the settlement date happens for ordinary reasons. A purchaser's lease ends before settlement, or a vendor's next place settles a fortnight after their sale, and the practical solution is for somebody to be in the house at a time when they do not own it. The money is the easy part, and it is priced two quite different ways depending on who is arguing. The harder part, and the one solicitors care about, is that occupation without ownership breaks the assumptions everything else rests on: whose insurance responds, who is liable for damage, and what happens if settlement then does not occur. Those questions have no default answers, which is why an arrangement that feels like a favour between reasonable people needs to be written down like one that is not.

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The arrangement
The alternative pricing, and the outgoings
Interest method
$3,682.19
$175.34 a day
Market rent method
$2,250.00
$107.14 a day
The gap to negotiate over
$1,432.19
the interest method is higher here

The purchaser pays the vendor

Days of occupation21 days
Interest method, at 8.00% on $800,000.00$3,682.19
Market rent method, at $750.00 a week$2,250.00
Difference between the two$1,432.19
Outgoings for the period$333.70
Total on the interest method$4,015.89
Total on the rent method$2,583.70

The outgoings for the period

OutgoingA yearOver the period
Council rates$3,600.00$207.12
Insurance$2,200.00$126.58
Body corporate levy$0.00$0.00
Total$5,800.00$333.70

Whoever is in occupation normally covers the outgoings for the period, on top of whatever occupation rent is agreed. Insurance is listed here as a cost, which is separate from the question of whose policy actually responds.

Why the two methods disagree

MethodThe logicWho it usually favours
Interest on the purchase priceOne party has the use of the property while the other is out of their money, so the price of the money is the right measureThe party receiving payment, in most markets, since yields on residential property are usually below borrowing rates
Market rentOccupation is occupation, and what the property would let for is what it is worth to occupyThe party paying, for the same reason in reverse

Here the interest method is $1,432.19 higher, which is the usual direction. Splitting the difference is a common landing point and it is worth going in knowing both numbers rather than one.

The money is the least important part of this arrangement. Occupation outside settlement needs a written agreement prepared by a solicitor covering insurance, liability for damage, responsibility for outgoings, and precisely what happens if settlement does not occur. Insurers must be told: a vendor's policy may not cover a dwelling occupied by someone who does not own it, and a purchaser's policy usually does not begin until settlement, so an unnotified arrangement can leave the property effectively uninsured. Many solicitors advise against early possession entirely, because a purchaser who has moved in and then cannot settle is considerably harder to remove than one who was never let in. The occupation rent figures here are conventions rather than entitlements, and neither method is a rule.

Two logics, two numbers

The interest method treats the arrangement as a financing question. The purchaser has the use of a property they have not paid for, or the vendor is holding money for a house they have not vacated, and either way somebody is out of their capital. Pricing that at an interest rate on the purchase price follows naturally. The market rent method treats it as an occupation question and asks what the house would let for. Both are reasonable, and because residential yields in New Zealand generally sit below mortgage rates, the interest method usually produces the larger figure. That is why the party doing the paying tends to propose market rent and the party receiving tends to propose interest.

The insurance question is the one to settle first

People arrange early possession informally because it feels like a small favour between two reasonable parties, and the money involved genuinely is small. The exposure is not. A house occupied by someone who does not own it sits in a gap between two policies: the vendor's insurer may treat it as no longer owner-occupied, and the purchaser's cover has not started because settlement has not happened. If the house burns down in that gap the argument is not about a few thousand dollars of occupation rent. Telling both insurers and getting the position confirmed in writing costs nothing and is the whole point of doing this properly.

What happens if settlement fails

The scenario solicitors worry about is a purchaser who has moved in, brought their furniture, put the children in the local school, and then cannot settle. The vendor now has an occupied house they cannot market and an occupant with no obligation to leave promptly. Removing someone in that position is slow and expensive, and it is entirely avoidable by not granting possession until settlement. If early possession is going ahead anyway, the written agreement needs to specify what happens in that event, including a clear obligation to vacate and who bears the cost of enforcing it.

Worked example

A purchaser takes possession 21 days before settlement on an $800,000.00 property. Under the interest method at 8.00% the occupation is worth $3,682.19, or $175.34 a day. Under the market rent method at $750.00 a week it is worth $2,250.00, or $107.14 a day.

The two methods differ by $1,432.19, which is the room in the negotiation. On top of whichever is agreed, the outgoings for the period come to $333.70, being $207.12 of rates, $126.58 of insurance and no body corporate levy.

So the purchaser pays $4,015.89 if the interest method is used, or $2,583.70 if market rent is.

How this is calculated

The interest method is the purchase price multiplied by the annual rate and by the days of occupation divided by 365. The market rent method is the weekly rent divided by seven and multiplied by the days. Each outgoing is divided by 365 and multiplied by the days to give the amount attributable to the period. The totals add the outgoings to each occupation rent figure, and the gap is the difference between the two methods before outgoings, since the outgoings are the same either way. Which party pays which follows from the direction of the arrangement, and nothing in the arithmetic changes when it is reversed.

Official sources

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Frequently asked questions

Can I move in before settlement?

Only if the vendor agrees and the arrangement is documented properly. It is not a right and it is not automatic. Taking possession before settlement means occupying a property you do not yet own, which raises questions about who insures it, who is liable if something goes wrong, and what happens if settlement then fails. Every one of those needs to be answered in writing before the keys change hands.

What is a rent-back?

The reverse arrangement, where the vendor stays in the property after settlement, typically because their own purchase settles later. Ownership has passed, so the vendor is now occupying someone else's house and normally pays for the privilege. The same questions about insurance, liability and what happens if they will not leave apply, in the other direction.

How is occupation rent usually calculated?

Two conventions are common and they give different answers. The interest method charges a rate on the purchase price for the days of occupation, on the logic that one party has the use of the property while the other is out of their money. The market rent method charges what the property would let for. Which is used is a matter of negotiation, and knowing both numbers is what makes that negotiation informed rather than arbitrary.

Who insures the property during early possession?

This is the question that matters more than the money, and it has no default answer. The vendor still owns the property and normally still insures it, but their insurer may not cover a dwelling occupied by someone else, and the purchaser's policy will not usually start until settlement. Both parties need to tell their insurers what is happening and get the position confirmed in writing before occupation begins.

What if settlement then falls through?

This is the reason many solicitors advise against early possession altogether. A purchaser who has moved in and cannot settle is occupying a house they do not own, and removing them is considerably harder than never having let them in. The vendor is left with a property they cannot market, potentially damaged, and an occupant with no obligation to leave quickly. If early possession is going ahead, the agreement needs to say precisely what happens in that event.