A post-occupancy agreement happens when a buyer & seller agree to allow the sellers to stay in the property after settlement.
When it goes well, the seller leaves the property on or before the agreed upon date. The buyer completes the final inspection with their buyer's agent and finds no problems. At that point, buyer & seller agree to release the security deposit funds (security deposit from the seller held in escrow by the settlement attorney) and everyone is happy!
But the post-occupancy agreement can get complicated and messy especially when the buyer and/or seller don't understand how it works. So here are the main points to know before you sign a post-occupancy agreement.
- There is no landlord-tenant relationship in a post-occupancy agreement - This situation is unique because the seller has now agreed to rent back the house they sold for a brief period of time. Most post-occupancy agreements can be no longer than 60 days. The seller is not a tenant and the buyer ( new homeowner) is not a landlord. I recently talked to a seller who was renting back for a couple of weeks. She said she "knew her rights as a tenant". However, the post-occupancy addendum she signed clearly states that the seller has no rights afforded to tenants.
- The agreement usually covers the cost of PITI - The buyer and seller agree to the cost of the rent back. Usually, the money covers the Principal, Interest, Taxes, and Insurance that the buyer (now the owner) would be expected to cover. This money is deducted from the Seller's proceeds at settlement.
- A security deposit is provided by the seller - The security deposit is held in a non-interest bearing account by the settlement attorney. At the end of the agreed upon time, the buyer walks through the property to verify the condition. The seller should leave the property vacant, clear of trash and debris, broom clean and in the condition required under the terms of the Post-Occupancy Addendum.
- The Seller agrees that the Buyer may enter the property - This is the stickiest part of the agreement. In a perfect world, the sellers and buyers get along and agree to allow access to the property for reasonable requests. Reasonable is the key word here! If you have buyers who want access to the property and the sellers don't want to let them in-you've got a problem! The sellers have a right to their privacy. The buyers have a right to access their property during reasonable hours of the day as long as they give the sellers prior notice. Keeping this balance can be very challenging.
Before entering into a post-occupancy agreement, ask yourself these questions
- Are you expecting to bring many contractors into your new home to get estimates for work? - Once or twice may be fine but don't expect to disrupt the seller's privacy for your own convenience. If the work can wait, then wait until the post-occupancy agreement time period is over.
- As the seller, do I understand that I no longer own the home and the new owners may need access to the home? - Yes, you have a right to your privacy but you also have signed an agreement saying the new owners can access the property to examine, maintain, repair and/or protect the property from damage.
- Buyer or Seller- can you keep your emotions in check? - Buying and selling a home can be a stressful time. Emotions are high since the seller is leaving their home and the buyer is hoping to coordinate their move and prepare their new home. As is often the case with a post-occupancy agreement, the seller is also timing the purchase of their next property.
Lots of moving parts to this scenario!
Take a breath, be compassionate and consider the other parties feelings and situation. Buyers and Sellers can move confidently ahead and work together toward an amicable end to the post-occupancy agreement.