POST OCCUPANCY AGREEMENTS REMAIN VERY USEFUL TO SELLERS
In the current real estate market, mortgages are currently at an all time low and homes are selling at a rampant pace. Ask any real estate professional and they will confirm that that the demand for homes far exceeds supply! Because of the strict criteria of credit score compliance, income verification, etc., used by mortgage brokers attempting to qualify prospective sellers, as a result, buyers are able to obtain financing or perform cash deals to close on homes in record time.
Most buyers wish to occupy the property right after closing. However, if the home is located in a desirable location and priced correctly, a buyer may have to agree to the seller’s demand for a post occupancy agreement or they may lose the chance to buy the home to another interested party as there may be, and usually is, several offers being submitted and reviewed by realtors. As a result of this type of leverage for sellers in desirable areas, prospective sellers may not have to vacate their homes but instead can allow for their children to finish the school year, wait for the next home to be completed, or simply gather belongings and move in an un-rushed manner.
These types of deals, called Post-Occupancy Agreements (sometimes called Rent-Back Agreements), are agreements where the buyer of a property agrees to allow the seller of the property to stay in the home past the settlement date. These are not cut and paste agreements. Instead, a sort of legal finesse is required to make certain that all parties are protected as there can potentially be liability if these agreements are not structured and reviewed properly. One major area of concern which could present a problem is the liability during this post closing period. Sellers should be liable for any injuries or loss or damage to property post closing. Sellers would need to take this into consideration and carry their own liability insurance coverage until they vacate the premises to ensure they do not expose themselves to severe personal liability by not carrying insurance during the post closing period.
Another concern is if the seller refuses to leave after the post closing move out date. What are the ramifications of this action? There could be some hardship matters which arise after the closing which could cause the seller to not have the ability to move out on time. For example, if the seller loses his/her job and now fails to qualify for bank financing on the new home, then it is unlikely he/she can now perform. At this point the seller has no place to go and all of a sudden the buyer is a landlord suing to evict the seller from the home which costs thousands more dollars and the buyer now having to maintain the premises. These situations should all be considered in the Rent-Back Agreement and the appropriate provisions included to deal with this possibility.
Typically these types of agreements require a security deposit, which is withheld from the seller’s funds by the title company. This is a way for the buyer to be protected and make sure that the seller has not damaged the property during the rent back period. After a final inspection at the end of the rent back period, assuming that everything goes well, the buyer informs the title company to release the security deposit back to the sellers. If there is a problem during the final inspection, the buyers and sellers need to come to an agreement on how the security deposit is to be distributed.
Post Occupancy Agreements are quite common and offer a great solution to the difficulties of timing the purchase settlement and the sale settlement in a manner that is convenient for all parties.