What is a Post-Closing Occupancy Agreement?
The term "post-closing" typically means after closing. A post-closing occupancy agreement is a post-closing rental agreement between the seller and the buyer of real property which allows the seller to remain in the residence after closing. This allows the seller to receive cash proceeds from the sale to which the seller would otherwise not be entitled. In a typical transaction the buyer makes an offer to purchase the home, and the seller closes on the sale of the property and moves out of the home on the same day. With a post-closing occupancy agreement, the parties can agree to a delayed closing on the sale or a delayed move out by the seller to allow the seller to remain in the property, post-closing, for a specific period of time.
There are several reasons for post-closing occupancy agreements. It can become necessary for a seller who has sold his/her home to obtain a temporary transfer to another state by the employer . This may happen if the employer/human resources has mishandled the file or there is a delay with the new license or employment. In such case the time period for the rental apartment may not cover the time the seller needs to be in the new location. If it is known that this will occur, then negotiating for a post-closing occupancy agreement in advance of the transfer may allow the seller to remain in the home(s) until resettlement has been completed.
For sellers who have not found a future home, entering into such an agreement may afford the seller the time to find that future home, even if it is in another neighborhood or county.
A seller may also want to move to a less expensive home in the same neighborhood. The need for post-closing occupancy on both sides provides that seller an option to obtain that less expensive home without a more burdensome agreement.
Essential Components of a Florida Post-Closing Occupancy Agreement
A Florida post-closing occupancy agreement typically encompasses the following key components:
Occupation Statement – The seller agrees to become a tenant and reside in the home for a specifically defined period of time.
Rent – The seller agrees to pay the buyer an agreed upon monthly rental amount which is defined in the agreement. Florida post-closing occupancy agreements typically do not involve free rent or credit of the mortgage payment by the buyer to the seller, and should be carefully evaluated if that type of agreement is sought.
Security Deposit – The seller may be required to place a security deposit with the buyer. The security deposit is usually in the amount of a month of rent and held as back up in the event that the seller fails to cooperate with the terms of the agreement. Security deposits should not be waived, even in a short term occupancy.
Repayment Terms – The seller must repay the security deposit based on the criteria outlined in the Florida landlord tenant statutes, which are substantially similar in content to the residential landlord tenant act which governs Florida landlords, to the buyer when the seller vacates.
Seller’s Obligations – The seller is usually required to make the mortgage payment during the occupancy period, continue payment of insurance to keep the home fully insured, make any necessary HOA fees and assessments for the home, maintain the landscaping, maintain the utilities, maintain the property for the duration of the occupancy period, and surrender possession of the property to the buyer.
Buyer’s Obligations – The buyer must provide the seller notice of default, to provide time to cure the default, when the seller (1) fails to make the mortgage payment during the occupancy period, (2) fails to pay the HOA fees or assessments for the serious of the occupancy period, and (3) fails to timely surrender possession of the property to the buyer after the occupancy period.
Advantages and Disadvantages for Buyers and Sellers
BUYER’S RIGHTS: While the Buyer has the immediate right to occupy the home, the Seller is still the owner and responsible for any claims that arise from the Buyer’s occupancy of the property. Clearly the Buyer will be responsible for making the mortgage payment if there is one. Furthermore, the Buyer may not modify or change the property in any way without the Seller’s prior written permission.
SELLER’S RIGHTS: While the Seller may have the right to occupy the property until a certain date, this does not mean that they have the same rights and responsibilities as a tenant. The Seller is not legally considered a tenant and may legally evict the Buyer if need be.
BUYER’S OBLIGATIONS: The Buyer has all of the obligations of an owner of the property including paying mortgage payments and maintaining insurance. In addition, the Agreement should specifically provide, if applicable, for maintenance, payment of utilities, and association fees.
SELLER’S OBLIGATIONS: The Seller is responsible for the mortgage and association fees for the property if both parties agree to this in the Purchase and Sale Agreement. The Purchase and Sale Agreement should specifically provide for maintenance, payment of utilities, taxes, and insurance.
Financial and Tax Implications
BUYER: No exceptions are available for financing. Any delay in closing is a risk for the Buyer. The Buyer is responsible for maintaining all payments including utilities.
SELLER: The Buyer may transfer some of the expenses of the property to the Seller with the exception of the mortgage if the Purchase and Sale Agreement provides for it. If repairs are needed to the home while the Seller remains in possession, switch the closing date in order to fix the repair.
Risks in the Agreement
BUYER: If the Buyer does not pay the mortgage, the Seller has the right to regain possession of the property without having to go through an eviction process. This clause is useful when the Buyer has poor credit history and you want to be able to repossess your home quickly if they fail to pay.
Post Closing Occupancy Agreements can be very convenient in certain situations but they can also be a risky proposition for both the buyer and the seller.
Legal Considerations and Compliance in Florida
In Florida, the legality of a POST-CLOSING OCCUPANCY AGREEMENT hinges on the terms of the contract and how it is executed. Although a realtor may provide a form to be used, there is no Florida statute that requires the use of the form. A POST-CLOSING OCCUPANCY AGREEMENT may incorporate by reference the terms of a real estate purchase and sale contract, however, if there is any dispute between the terms of the POST-CLOSING OCCUPANCY AGREEMENT and the terms of the purchase and sale contract, one will control over the other, depending on which one was actually signed by the parties.
In order for a POST-CLOSING OCCUPANCY AGREEMENT to be enforceable against a buyer/tenant, the buyer/tenant must sign the contract. If the buyer/tenant fails to sign the POST-CLOSING OCCUPANCY AGREEMENT, the landlord/seller cannot evict the buyer/tenant for breach of the POST-CLOSING OCCUPANCY AGREEMENT. Likewise , if the POST-CLOSING OCCUPANCY AGREEMENT is not signed by the landlord/seller, it cannot be enforced by the buyer/tenant. Both parties must sign the contract for it to be legally binding.
If the parties wish to modify or amend the terms of their POST-CLOSING OCCUPANCY AGREEMENT, it should be done in writing. It is possible for the parties to orally modify an existing POST-CLOSING OCCUPANCY AGREEMENT or to enter into an unwritten agreement, however, such contracts are not enforceable according to Section 725.01 Florida Statute. An oral modification of an existing agreement is not enforceable if the original written POST-CLOSING OCCUPANCY AGREEMENT required any modification to be in writing. In addition, a new agreement modifying the terms of a POST-CLOSING OCCUPANCY AGREEMENT may be unenforceable if made before the original POST-CLOSING OCCUPANCY AGREEMENT has been signed by the buyer/tenant or if it is yet to be signed by the landlord/seller.
Strategies for Negotiating a Beneficial Agreement
Ultimately, you want a post-closing occupancy agreement that works out in favor of both you and the seller. There are some things you can do during the negotiation process to help make that happen. Start by conducting your ordinary buyer due diligence. The better you know what’s happening with the property you’re purchasing (and the sooner you know it), the better positioned you will be to negotiate a post-closing occupancy agreement that serves your interests. For example, if you discover that it will take more than a week to vacate the property, you may be able to negotiate a higher rent payment for that week by providing only short notice to the seller. Alternatively, you may be able to negotiate an extended occupancy period, speculating that you’ll have a buyer lined up before it expires. In either case, your knowledge regarding the situation can help increase your leverage. Do remember, however, that this is still a private contractual agreement between you and the seller, and that sellers who are thinking reasonably will understand that you’re not going to give them a deal just for the sake of it. Offer to make two to three modifications to satisfy the seller if they give you more time (e.g., replace the carpet, repaint the house, perform certain repairs at your expense). This shows them you’re serious, but also not unreasonable. Keep in mind that any deposits you collect are negotiable. If you’ve already received advance rents and deposits, utilize some of that money to help your case in negotiations. If you don’t anticipate a one-week grace period, consider offering to return half of the advance rents and deposits, instead of 100%. Be reasonable, and thoughtful, in this sense-always spend their money, not yours, for things you had planned to do anyway. Lastly, once they agree in writing to your position, remind them of these facts: 1) Decorating and cleaning are your primary objectives for obtaining possession. 2) The pending sale is higher than others. 3) It is win-win; they have an additional month to find and close on a house. 4) You will proceed on all fronts with or without their cooperation. 5) You don’t need a landlord-tenant lease to accomplish your goals. 6) You are not asking them to take money out of their pocket, or put themselves in an irrevocable position. 7) You want to help them because they will benefit from it. 8) Their cooperation will allow you to leave them with a good taste- and will enable them to recommend you to future clients.
Common Pitfalls to Avoid
Reviewing the terms of the post-closing occupancy before closing is crucial. While it can be tempting to agree to the terms proposed by the seller, the buyer should be aware that these terms are negotiable and its not uncommon for them to be used as leverage in the negotiations. The cash offer is traditionally king in Florida residential real estate sales. By knowing the potential obstacles a seller may face, such as having to pay rent to occupy the home after closing, you can use your position of power to negotiate the post-closing occupancy terms in your favor. Consider insisting that the seller fix the contractually required repairs prior to closing in order to limit its exposure after you assume ownership of the property, eliminating the need for a back-up cash payment .
Not ensuring the occupancy agreement is properly recorded is another pitfall. In the absence of a properly recorded agreement, the commercial landlord-tenant law governs the property. A clause mistakenly added to the agreement prior to closing, especially if it contradicts anything already in the contract, can also cause future problems. For example, including a term stating the buyer is not entitled to profit from the sale of the home prior to occupying the property, which imposes a goal on the seller it did not agree to, is the type of mistake that can lead to a lawsuit.
Having an attorney or realtor draft the post-closing occupancy agreement can save you time and money by ensuring you don’t need to redo the agreement prior to moving in.
