What is a Post-Occupancy Agreement?
A post-occupancy agreement is made between a seller and a buyer of a property that allows the seller to remain in the home for a certain amount of time after the sale of the home. It’s a mutually agreed-upon contract that’s added as a rider to the sales agreement.
Why Do Sellers Request a Post-Occupancy Period?
A seller may wish to remain in their home after closing for a number of reasons. They might:
- Want to allow their children to finish the school year
- Need more time to move
- Be waiting for their new home to be finished
- Be waiting to close on the sale of their next home
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How Does a Post-Occupancy Agreement Work?
Post-occupancy agreements require the buyer and seller to agree on terms. The process has two main parts:
1. Signing the Rider
In Florida, setting up a post-occupancy agreement starts with both parties—seller and buyer—signing a rider to the purchase and sales contract. The rider states that a lease will be signed X number of days prior to closing (typically within 10 days).
The commonly used Florida Realtors CR-6 U Post-Closing Occupancy by Seller Rider also contains the following:
- Which party (buyer or seller) will be responsible for paying for the lease’s preparation
- The number of days after closing that the current sellers can stay in the home
- The amount of monthly rent that the seller will pay the buyer
2. Signing a Post-Occupancy Lease
Next comes the part where the responsible party has the lease or post-occupancy agreement prepared. The buyer and seller should mutually agree on all terms. A real estate agent and real estate attorney should assist in the preparation of this document.
The lease should outline:
- The number of days that the seller can remain in the home (typically this cannot exceed 60 days)
- The amount of rent that the seller must pay the buyer
- Who is responsible for utilities
- The buyer’s right to access the property (for repairs, to let contractors in, etc.)
- The seller’s responsibility to maintain the home
- Any security deposit amount that the seller must pay
- Consequences if the seller refuses to move out after the agreed-upon date or breaks other terms
All parties must sign the post-occupancy agreement before closing, as dictated in the rider.
What Happens if the Buyer and Seller Can’t Agree on a Post-Occupancy Agreement?
If the buyer and seller are unable to agree on a lease within the time period agreed upon in the Post-Closing Occupancy Rider, either party can back out of the sale. The buyer or seller can provide written notice to terminate the contract. If this happens, the buyer will get their deposit back.
Do Buyers Have to Accept Post-Occupancy Agreements?
A buyer doesn’t have to agree to a post-occupancy agreement. If the seller requests a post-occupancy period, the buyer can refuse. However, it could mean losing out on the home you want, especially in a seller’s market. The seller might reject your offer and accept one from a buyer who is open to a post-occupancy agreement.
Risks of Post-Occupancy Agreements
Post-occupancy agreements are fairly common, but they aren’t without risk. A number of things could go wrong while the seller lives in the home after you’ve purchased it:
- The seller might not pay rent on time
- The seller might refuse to leave at the agreed-upon time
- The seller might remove appliances from the home that are supposed to remain
- The home might be in a different condition than it was at closing
- The seller might violate HOA rules
- You could be sued if someone gets injured on the property
How to Protect Your Interests During a Post-Occupancy Agreement
Even if you like to look on the bright side, when agreeing to a post-occupancy period, it’s important to assume that things won’t go right. You need to proactively take steps to protect yourself and your home.
1. Prepare a Clear, Written Agreement
You need a post-occupancy agreement in writing that’s signed by all parties and clearly spells out the following:
- Date and time that you (the buyer) gain possession of the property
- The condition that the home should be in on that date
- What happens if the lease terms aren’t met (penalties)
2. Require a Security Deposit
Your written agreement should also detail a security deposit. For example, requiring the seller to place 1 or 2 percent of the sale proceeds into an escrow account. That way, if the seller violates any terms of the lease, the buyer will receive the agreed-upon compensation.
For example, if the seller remains in the home for an extra day and the penalty for moving out a day late is $500, the buyer will receive $500 from the escrow account. Or, if the seller removes anything from the home, the funds in escrow can pay to replace missing items.
3. Request Proof of Insurance
Let your homeowner’s insurance company know about the post-occupancy agreement. Make sure that you have the proper coverage. And, make sure that the seller has adequate insurance coverage while they’re living in your home. They need to have coverage for the property and their belongings.
4. Request Rent Payments in Advance
You can request rent payments in advance to minimize your risk. Provide details about rent arrangements in the written agreement.
5. Do a Post-Occupancy Walk-Through
After the sellers move out of the home, do another walk-through. Document anything you notice that is off. For example, if there’s an appliance missing or obvious damage that wasn’t there prior to closing. The post-occupancy agreement should state that the seller will receive their escrow funds after the walk-through is complete.
Final Thoughts on Post-Occupancy Agreements
A post-occupancy agreement might not be ideal for the buyer, but it can be worth it if it means landing the house of your dreams. Work with a trusted realtor and real estate attorney to review or create a post-occupancy agreement that protects your interests and minimizes risk.