Occupancy agreements

It would be good to report that all real estate deals mesh with the precision of a fine watch movement, but rarely is this the case. Every deal involves a profusion of complexities, and complications, including one of the most difficult issues of all: coordinated closings.

It's terrific to sell one house and to then turn around and buy another. And while coordinated settlements are common, not every deal works so smoothly.

The solution to a host of occupancy issues is to go from an informal arrangement ("Yeah, sure, the place is empty so it's okay to stay for a few weeks"), to something more structured. While a lengthy addendum may seem awkward and stuffy, it does have the advantage of eliminating or moderating a host of problems before they can arise. Here are some of the major issues that an occupancy agreement should address.

Alterations

While buyers may have a fervent desire to fix up the place from the moment they move in, the property is, not actually theirs until closing. Alterations should be handled in two ways. First, there should be no alternations without the owner's permission. Second, in the event the deal falls through, any alterations become the owner's property.

Assignment

To protect the owner's interests, it should not be possible to assign occupancy, nor should occupants have the right to sublet the property without the owner's approval.

Condition

Before homes go to closing the buyer can usually walk though the property to assure that the house has not been damaged during the time between the contract signing and settlement. In a situation where the buyer will live on the property before closing, the approach must be somewhat different. A walkthrough should be conducted prior to occupancy (not settlement) to find any substantial damage. Once the walk-through is finished the buyer is then responsible for maintaining the property.
For a post-occupancy arrangement, the seller must be treated as a regular tenant. The property should be inspected prior to the owner's occupation and after-if there's any damage, then the owner must pay.

Deposit

How much deposit money will be held by the owner? Under what conditions can some or all of the deposit be lost? It's generally a good idea to have the largest possible deposit; however, buyers and sellers should be aware that individual jurisdictions may limit the size of a deposit.

Failure

Buyers and sellers may assume that a deal will go through, but what if financing is not available or a major problem crops up? It's entirely possible to have a situation where buyer moves in before closing but the property never goes to settlement. In this situation a pre-occupancy agreement should provide that the buyer's residency will end as of a particular date, unless the seller agrees to an extension.

Heirs and Assigns

An occupancy agreement must provide that it's binding on heirs, assigns, executors, administrators, and successors. The logic here is that if a buyer or seller dies, assigns the sales agreement, or is hit by a bus, then the deal will still go ahead.

Hold Harmless

This is an important clause, which says, in effect, that if there is an accident on the property during the occupancy period then the owner will not be liable for damages.

Insurance

The occupancy agreement should require the resident to have fire, theft, and hazard insurance for the property. That said, a seller should always maintain insurance on the property until title is transferred in the public records, just in case the occupant's policy is faulty.

Legal Claim

If purchasers move into a home before closing-or if sellers stay on after settlement -does occupancy create a legal claim against the property? Because a claim may be created by occupancy, it's best to eliminate the problem before it can develop. A decision should be made as to whether in your jurisdiction it is better or worse to establish a landlord and tenant relationship.

Occupancy Charge

Although it looks like rent, in many areas you want to collect an "occupancy charge" and not "rent." The reasoning is that some 200 communities have rent control regulations and by charging "rent" an occupant may gain special rights and privileges. To avoid rent control, if possible, it may make sense to charge an "occupancy fee" and to never ever use such terms as "rent," "lease," or "rental."

Taxes

The owner should be expected to pay property taxes during the occupancy period.

Term

Usually we think of occupancy on a yearly basis or from month to month. However, in the case of an occupancy agreement the arrangement should run from day to day. Why? Because to end the occupancy it may be necessary to give notice in advance, sometimes the equivalent of a full month or however long the occupancy is defined. By making the occupancy day-to-day, it may be possible to remove the occupant with just one day's notice.

Utilities

The occupant should pay all utilities, which means assorted meters may have to be read before and after the occupancy period to assure a proper accounting.

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