For Florida real estate agents, understanding the nuances of the FAR/BAR Residential Contract(s) (“Contract”) is essential for smooth transactions. One frequently overlooked but important section is Paragraph 6(b), Subject to a Lease or Occupancy After Closing. This section addresses situations where the property being sold is currently leased to a tenant or subject to an occupancy agreement (which includes seasonal and short-term vacation rentals) after closing, and it has significant implications for both buyers and sellers.
Understanding Paragraph 6(b): Subject to a Lease or Occupancy After Closing
When the box in Paragraph 6(b) is selected, a buyer acknowledges that the property is subject to an existing lease agreement. This means that assuming that a buyer deems the lease to be acceptable, the buyer agrees to purchase the property with the tenant in place, respecting the terms of the current lease. The lease will survive the sale, and the new owner will step into the shoes of the landlord via an assignment of lease.
In addition, Paragraph 6(b) requires the seller to deliver copies of any written lease(s) to the buyer within five (5) days after the Effective Date. Upon receipt of the lease(s), a buyer will then have five (5) days to review the leases. If, during this five (5) day period, a buyer finds that the terms are not acceptable, the buyer may terminate the contract by delivering written notice to the seller.
What Happens When the 6(b) Box Is Checked in a Real Estate Contract?
Why Checking Paragraph 6(b) Can Save Your Deal
Avoid A Late Cancellation
A seller will want to deliver a copy of the lease as quickly as possible to the buyer to start the clock on a buyer’s review period. For example, if the seller delivers the lease to the buyer three days before closing, the buyer would have the ability to cancel the deal up to the closing date if the buyer finds the lease terms unacceptable. Unfortunately, we have seen this situation play out and have had transactions canceled at the last minute due to this provision.
Save Buyers From Unnecessary Costs
Assuming a seller provides the lease within five (5) days after the Effective Date, a buyer will have an earlier opportunity to review the lease as a result of early disclosure. This early review is advantageous to a buyer because the buyer’s review will likely occur prior to spending money on inspections and other transaction-related costs. If the buyer cancels due to unacceptable lease terms, they will have done so before expending funds on due diligence.
Set Clear Expectations for Closing
It confirms that the buyer is aware of and agrees to take ownership subject to the lease terms. Additionally, it puts the buyer on notice that the buyer will not be receiving occupancy at closing, which helps avoid complications at closing.
Final Step: Always Confirm Lease Status and Use Paragraph 6(b) When Needed
It’s essential to verify whether a property has a current tenant and, if so, to make sure that the box in Paragraph 6(b) of the contract is selected. This simple step safeguards the transaction by ensuring the lease/occupancy status is clearly documented and agreed upon, preventing unwanted surprises that would otherwise derail a successful transaction.
