Recently leasebacks or post-closing occupancy agreements have been extremely popular in our area. The inclusion of the ability to leaseback the property after closing gives the seller some additional time to close on their new home or allow them to find a home while ensuring they are closed and the funds from their sale are available for their purchase.
The FAR/BR “Post-Closing Occupancy” Rider does cover some items and provides a timeframe for the parties to agree upon a written lease but it is often beneficial to the parties to agree on the specifics ahead of time so that neither party has an “out” later in the transaction based upon disagreement on the terms of the lease. Some important considerations are as follows:
• Who is responsible if any major systems such as the HVAC or appliances fail during the occupancy period? Rider U places the onus on the Seller to continue their Maintenance Obligation under Paragraph 11 of the Contract until they provide possession to the Buyer.
• Does the Buyer or Seller have to maintain insurance on the property? Have the parties made their insurance companies aware of the arrangement so they do not void their coverage?
• After a seller takes post-closing occupancy, what happens if the sale of their home is delayed and they don’t want to leave at the expiration of the post-closing occupancy agreement? This is especially a concern with sellers who may be waiting on the completion of new construction homes.
• If the Buyer is obtaining financing, is there a period within which their lender requires them to occupy the property?
• If the seller occupies the property post-closing, what happens if they damage the property after the closing date? Will there be a security deposit?
• If the Property has an Association, it is important to consider whether the association will allow a rental and if so what additional requirements they have with regard to applications, fees, and timeframes.
It is very important that all of these “what ifs” are addressed so that there are no surprises as the parties move toward closing. Similar considerations would apply in the event that you had a buyer occupying the property prior to closing (pre-closing occupancy).
If your buyers or sellers are thinking about entering into a pre-closing or post-closing occupancy agreement, it is very important that they engage a qualified real estate attorney to inquire as to the legality of the agreement in their transaction and to protect their interest in the proper preparation of the agreements.
Sincerely,
Natasha Selvaraj, Esq. nselvaraj@berlinpatten.com
Berlin Patten Ebling, PLLC
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
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