Temporary Occupancy and Homeowner’s Insurance Coverage Don’t Get Caught Unaware!

We are seeing more and more Temporary Occupancy Exhibits in this Seller’s market.  Consider the following scenario:
 
The Owner of a property sells and includes a 60-day temporary occupancy in the purchase agreement.  The Property closes. The old owner is still in the house and the new owner has not yet moved in.
 
Yikes! The property burns down! Yikes, a tree falls on the roof! Yikes, a guest slips and falls!
 
Whose Insurance Pays?
 
Whose insurance pays for the damage to the real property?  Whose insurance pays for the loss of the former owner’s personal property?  Whose insurance pays for the slip and fall?
 
Not the former owner’s policy.  They are no longer an owner occupant.  Their policy is no longer valid for any of it.
 
Not the new owner’s policy.  The new owner was not occupying the property when it burned.  Their policy would not cover either.
 
Reviewing the language of the GAR F219, Temporary Occupancy for the Seller, the Seller has agreed to hold the other parties harmless from liability to people and property.
 
6. Seller hereby expressly releases Buyer, Seller’s Broker, Buyer’s Broker and their Affiliated Licensees from any and all liability of any nature whatsoever which may arise as a result of the Seller’s acts or the acts of anyone else entering the Property, including, but not limited to, liability for injury to persons and/or damage to personal property resulting from or in any manner occasioned by such
occupancy. Seller further agrees to hold harmless and indemnify the Buyer, Seller’s Broker, Buyer’s Broker and their Affiliated Licensees from any claim or loss arising out of or occasioned by the Seller’s occupancy of the Property.
 
7. It is specifically understood that should the Property be destroyed by fire or other occurrence, Seller shall bear the risk of loss to Seller’s personal property.
 
Buyer’s Temporary Occupancy Prior to Closing
 
The reverse situation is true.  Consider a buyer’s temporary occupancy prior to closing.  The Buyer has agreed to hold the seller harmless from liability and loss of personal property.
 
GAR F222
9. Seller shall, at Seller’s expense, retain fire and extended insurance coverage on Property until the date of closing. Buyer acknowledges
that such insurance coverage does not cover Buyer’s personal possessions and that Buyer shall bear the risk of loss on Buyer’s personal
property or for injuries sustained should Property be destroyed by fire or any act of nature during the time that the Buyer is in possession.
 
12. Buyer agrees to indemnify and hold Seller harmless from any claim or loss which results from the actions of Buyer or anyone else
entering Property while Property is occupied by Buyer under this Exhibit.
 
Recommendations in a Temporary Occupancy Situation
 
First, we recommend that there be a Special Stipulation in the Purchase Agreement for either situation as follows:

1. Seller’s Temporary Occupancy Special Stipulation

Buyer and Seller agree that, in exchange for the Seller retaining possession for a period after Closing, Seller will purchase an insurance policy that provides comprehensive coverage for damage or loss of Seller's personal property and at least $100,000.00 in personal liability coverage.  The Seller shall provide Buyer with a copy of the policy prior to closing.
 

1. Purchaser’s Temporary Occupancy Special Stipulation

Buyer and Seller agree that, in exchange for the Seller allowing the Buyer to move in for a period prior to Closing, Buyer will purchase an insurance policy that provides comprehensive coverage for damage or loss of Buyer’s personal property and at least $100,000.00 in personal liability coverage.  The Buyer shall provide Seller with a copy of the policy prior to closing.
 

The Temporary Occupant
Inquiries as to the best way to handle the temporary insurance should be directed to the insurer.  Real estate agents are not qualified to answer that question.
 
The New Owner
If there is a loan on the property, the lender would have required property insurance.  However, unless the property was an investment property, it would have been an owner’s policy.  The buyer/new owner should get a rider to their policy to cover during the time the Seller is maintaining possession of the Property or confirm in writing from their insurance company that none is required because it is considered short-term (typically 60 days).  Alternatively, if the insurance company will not use a rider or will not confirm that none is required, the buyer/new owner should take out a temporary landlord’s policy.  Again, that question must be directed to the buyer’s insurer.
 
What if the Occupancy is for days, not for weeks or months?
 
A shorter time period is less risky, but it really doesn’t change the situation.  Although a period of days might be overlooked by an insurer, it can’t be assumed.  It’s up to the insurer. The buyer and the seller should consult with their insurers, weigh their risks and make their own decisions.  We can only make them aware of the risks.