Our next tool is a two-for-one: Occupancy Agreements. There are Pre-Settlement Occupancy Agreements and Post-Settlement Occupancy Agreements (aka Rent-Backs).
Occupancy agreements help facilitate a buyer’s or seller’s move date when it doesn’t coincide with a settlement date. They essentially act as pseudo-leases, with one party as “landlord” and another as “tenant” (though it’s important to note that those words are not used explicitly. Landlord-tenant relationships create all sorts of new requirements, especially in DC.)
Why would a seller need a rent-back? Usually it’s because of the timing of receipt of funds. Often a seller needs to proceeds from a sale in order to buy their next home. But in some jurisdictions, like Virginia, funds are not released to the seller until the deed and mortgage are recorded at the courthouse, which could be days after settlement. Even if proceeds are received the same day, banks often put holds on checks so the cash may not be immediately available to a seller. (The timely transfer of funds is the reason that many sellers will request a particular settlement company, too.)
Why would a buyer need a pre-occupancy agreement? Generally because their lease timing or their own sale (in the case of a move-up or move-down buyer) doesn’t coincide with settlement.
What protections does the “landlord” have during an occupancy agreement? For one, a deposit, just like in a lease, plus a clause that any damages will be paid for by the “tenant.” There’s a walk through of the property at settlement, and also one at the conclusion of the occupancy agreement.
There are a lot of other clauses in a standard Pre- or Post-Occupancy Agreement. Make sure you discuss the risks with your agent.
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