More and more, we are seeing Temporary Occupancy Agreements (GAR F219) so sellers can remain in their properties post-closing. Here are a few tips for navigating the form.
The Terms in the Temporary Occupancy Exhibit Control Over the Terms in the Agreement The temporary occupancy exhibit includes language that states if there is a conflict between the exhibit and the agreement, the terms in the exhibit shall prevail. If you include a special stip in the temporary occupancy exhibit and counter that stip in the counteroffer, best practice is to remove the stip or strike through it. Temporary Occupancy Exhibit (F219), Paragraph 13: In the event there is a conflict between the terms and conditions of the Agreement and this Exhibit, the terms and conditions contained in this Exhibit shall prevail. Seller is Required to Provide Buyer with One Set of Keys at Closing Often, sellers do not want to give the buyer keys at closing since they are still occupying the property. Remind the seller at the time of contract that they are legally required to turn over one set of keys at closing. Temporary Occupancy Exhibit (F219), Paragraph 2: At the time of closing, Seller shall provide Buyer with one set of keys, door openers, fobs, access cards, codes and other similar equipment needed to access the Property, the community and community amenities. Not later than the time of possession, Seller shall turn over all remaining keys, door openers, fobs, access cards, codes and other similar equipment needed to access the Property in Seller’s possession to Buyer. Maximum Temporary Occupancy is 60 Days The GAR Temporary Occupancy Agreement is designed to cover the Seller remaining in the property for up to 60 days. If the Seller needs longer than 60 days, a lease should be used. The reason is that, if the buyer has purchased as an owner occupant, lenders consider 60 days the cut off for determining whether the owner is an owner occupant or an investor. If the lender determines that the new owner is actually an investor, the new owner would be in default of the loan. The interest rate could increase or, worse, the owner could be accused of mortgage fraud. Tip: Don’t allow a post-closing occupancy to be more than 60 days. Use a lease form if the seller requires more than a 60 day occupancy. More than 60 days may not work if the new owner will be an occupant. Watch Out for Insurance Issues Once ownership of a property changes, insurance coverage changes too. The seller’s owner occupant policy no longer covers the seller. The buyer is now the owner. If there is a flood or a fire, the new owner’s policy covers the real estate, but not the seller’s personal property. Tip: Make sure the seller contacts his insurance carrier for advice regarding personal property coverage during the temporary occupancy. The New Owner is Responsible for Maintenance and Repairs Once the closing takes place, the new owner is responsible for the maintenance and repair of the property. The previous owner is not. The old owner is just a tenant. Unless the old owner has damaged the property beyond normal wear and tear, they are only responsible for their own personal property. Tip: Advise your buyers, before they agree to a seller remaining in the property post-closing, that they are responsible for the maintenance and repair of the property post-closing. The New Owner has the Right to Enter the Property at Reasonable Times with Notice Buyers and/or buyer’s representatives have the right to enter the property to inspect, examine, survey, meet contractors and prepare for the buyer’s occupancy. Temporary Occupancy Exhibit (F219), Paragraph 10: Upon prior notice to Seller, Buyer and/or Buyer’s representatives shall have the right to enter the Property at Buyer’s expense and at reasonable times to inspect, examine, survey, meet contractors and prepare for Buyer occupancy of Property. Seller shall cause all utilities, systems and equipment to be on so that Buyer may complete all inspections. Buyer agrees to hold Seller and all Brokers harmless from all claims, injuries and damages relating to the exercise of these rights and shall promptly restore any portion of the Property damaged or disturbed from testing or other evaluations to a condition equal to or better than the condition it was in prior to such testing or evaluation. Make a Hold Over Period Hurt Once the agreed upon temporary occupancy has terminated, a seller that remains in the property is holding over. If the seller doesn’t leave voluntarily, the new owner may have to evict. Evictions cost time and lots of money. Therefore, make the daily cost of holding over a significant one. If the daily cost is minimal, the seller has no incentive to leave. Tip: Include a large per day hold-over fee. Make it hurt. $500 or $1000/day would incentivize a seller to leave on time a lot more than a small fee.
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