When the seller needs additional time after close and plan post-close occupancy, buyers may wish to consider some ramifications. Will this effect your financing? How about insurance issues? Who will cover costs? … repairs? … substantial losses?
- Use and Occupancy Agreement – Seller to Remain: Principle residence – form/agreement, general in nature.
- License for the Limited Use and Occupancy Agreement – form/agreement, more specific in nature for use of subject premises.
- leasehold – tenancy and complexity of legal rights and obligations
- lease – transfers “possession”, and
- license – grants “only the right to use the premises” – a license to use and occupy, and nothing more. As a preliminary matter, it’s probably not a bad idea to refer to and title the agreement between the parties as “a license for the limited use and occupancy” of the subject premises, rather than simply a “use and occupancy” agreement
- Ask Lender: Will non-owner occupancy effect financing?
- Ask Insurance agent:
- House burns down – sellers is living there – post close, who pays?
- House burns down – sellers has not surrendered keys, not living there but has possessions still there – post close, who pays?
- Slip n fall – who pays?
- Do you need landlord insurance?
- Appliances included break, drain or HVAC fail – who pays?
- Ask Lawyer:
- For an agreement to cover possible losses
- Word agreement that will not create for seller ‘tenant rights’
- Ask Accountant:
- If the seller pays $X/day for more than 10 days overstay, is this rental income?
- Whether an agreement creates a lease or license may be determined by:
- a) the extent of the parties’ control over the premises;
- b) the language of the agreement;
- c) the intent of the parties;
- d) the duration of the expected occupancy;
- e) whether usage payments are made on a day to day basis;
- f ) whether the occupant is free to leave at any moment.
- Limited Use and Occupancy Agreement (may include such items as):
- Seller pays per diem amount of $____ ( Usually at least covers: mtg pyt, ins., taxes).
- Escrow held to be released after surrender of keys and complete removal all items & debris not included in sale. ‘Broom clean’ vacating includes but is not limited to: house/ garage/ attic/ yard/ out-building(s)/ with no trash remaining at curbside. Escrow for potential damage, hold-over, & buyer satisfaction of post move-out inspection $____ (e.g.: 3% of purch. price).
- After _____ days (e.g. 30), per diem occupancy will increase to $____ (e.g. 1.5 – 2X otherwise).
- Seller is responsible for risk of loss during post close hold over & will deliver in good working condition, the property, items included w/ sale, HVAC & plumbing.
- Buyer may enter premises at any reasonable time to inspect property.
Links for further reading:
- The Pre (/post – to regain occupancy) Closing Inspection for a Home Purchase – http://justrealestatetalk.com/the-buyers-pre-closing-inspection/
- Post settlement occupancy agreements: A useful tool, but beware of potential pitfalls – https://federaltitle.com/blog/post-occupancy-settlement-agreements-a-useful-tool-but-beware-of-potential-pitfalls
Please seek you own professional legal, tax, real estate, and insurance advice – not to the reliance of this article.