Post occupancy a.k.a. rent back agreements

You just signed a contract to buy your dream home, the one with the white picket fence, the game room and the custom kitchen. The only issue is that the sale of your property is taking place on June 20, while this house will not be ready until June 25. Immediately you call the buyers of your property, and while they have no problem waiting to move into the property, the lock on their loan expires on June 20. Now what?

The solution is a simple one, and it is frequently used. The Post Settlement Occupancy Agreement, sometimes also called a Rent Back Agreement, is an agreement whereby the buyer of a property agrees to allow the seller of the property to stay on at the property past the settlement date.

Typically the seller agrees to pay the buyer a per diem fee in exchange for being permitted to stay in the property past the closing date. Usually the per diem charge is the equivalent of the buyers PITI (Principal, Interest, Taxes, Insurance) on the property and, if applicable, condo dues or homeowner’s association dues. This way it is not costing the buyer anything to allow the seller to stay on.

Also, typically a security deposit is withheld from the seller’s funds by the title company. This is a way for the buyer to be protected and make sure that the seller has not damaged the property during the rent back period. After a final inspection at the end of the rent back period, assuming that everything goes well, the buyer informs the title company to release the security deposit back to the sellers. If there is a problem during the final inspection, the buyers and sellers need to come to an agreement on how the security deposit is to be distributed.

The purpose of the security deposit is to make sure that there is no damage to the property during the rent back period. It is not to be withheld as an escrow for repairs that were discovered in the original home inspection. Often buyers will attempt to use the rent back security deposit to cover home inspection item repairs that were never completed, but this is an improper use.

Also, creation of a rent back agreement does not create a Landlord-Tenant relationship. The standard GCAAR form that most agents use in the DC metro area makes this point clear. The District of Columbia recognizes tenant rights such as the tenants first right of refusal, so the distinction is an important one.

Post Settlement Occupancy Agreements are quite common and they offer a great solution to the difficulties of timing the purchase settlement and the sale settlement in a manner that is convenient for all parties.

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