This Article is a continuation of our discussion of the changes to the FAR/BAR Standard and “AS IS” contract forms. Section 6 of the Contract: Occupancy and Possession. The changes to this Section are important to keep in mind as we approach “season”. We have Buyers eager to take occupancy before closing and, we have the continued demand in the short term and vacation rental market.
There are three additions to this Section and one new Rider:
The addition of Rider T- Pre-Closing Occupancy by Buyer. This Rider expands the type of document required to enter into before a buyer pre-occupies the property. The intent is for the parties to have an option to enter into a less involved document for a one or two day early occupancy. Currently, the parties sometimes lose focus on the goal of the transaction, when having to be involved in an extensive lease review with terms and conditions that may or may not be applicable to the amount of time that the Buyer would be pre-occupying the property. The option to enter into a simpler Pre-Closing Agreement, will be helpful in reducing the time spent on a lengthy lease review, by using a more cursory form relevant to the occupancy period.
Expanding Seller’s disclosure (of not only the Property being subject to a lease, but also, any occupancy agreement-seasonal and short term vacation rentals included.)
The addition of disclosing short term vacation rentals and seasonal rentals is a relevant change with the current market and the new influx of seasonal and vacation properties. Often times the parties fail or forget to disclose a future reservation, as they may not have a lease, but only a short term rental agreement, or nothing but a confirmation email for a reservation. The current contract does not have a provision to specifically address that scenario. It will be important to ask the Seller whether they have any short term vacation or seasonal rentals. With this language now added to the contract, the contract expressly requires the Seller to disclose vacation and seasonal rentals to be included in Buyer’s 5 day review. I have heard it before, the day of closing, “I forgot to tell you, I have this one couple that comes down every year in April. They have been coming here for 15 years, and they should be here next week for the month.” Knock, knock, who is there??? This new provision, with its specific language, prompts all parties to disclose these additional categories of occupants.
Exclusion of an estoppel letter requirement for seasonal or short term vacation rentals. This Section continues to require an estoppel letter for a lease, however, due to the short term nature of a seasonal or vacation rental, the committee expressly excepted out an estoppel letter requirement for seasonal or short term vacation rentals. It certainly makes practical sense to not have to add that extra hurdle of trying to track down a vacationer or snow bird enjoying their beach time. I think we may see some pushback with buyers for this exclusion. From the perspective of the Buyer, confirming what payments have been made for rent or deposits, and that there are no property issues should make no difference whether the occupant is long term, short term or seasonal.
New Rider, DD: Seasonal and Vacation Rentals after Closing. Rounding out the topic of Section 6, a new Rider option has been added to the contract. This Rider compliments Section 6, and I expect would be included if seasonal and /or short term rentals were to be applicable to a transaction. This Rider gives the Seller the option to continue to enter into seasonal or short term vacation rentals, after the effective date of the contract. This rider provides an option for Seller to continue to operate, so that in the event that the transaction does not occur, the Seller has not lost out on the seasonal market opportunities. The seller would be obligated to provide all updates and new leases if the parties agree to have a seller continue to enter into future rentals. This Rider also requires a seller to provide a copy of the property management agreement if the seasonal rentals were made using a property management agreement. It will be important to not forget this Rider, when there is a vacation or seasonal rental. A buyer will want to decide on how involved and how much control, the buyer feels comfortable with before the closing.
Subsequent editions of this article will address other material changes, and as always, if you have any questions in the meantime, we encourage you to reach out to your trusted real estate lawyer.
Anastasia M. Stefanou, Esq., email@example.com
Berlin Patten Ebling, PLLC
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