Should I allow the seller to stay in the house after I close on it?

Allowing the old owners to live in your newly-purchased home after you close isn’t how most people imagine kicking off their homeownership.

But sometimes circumstances require buyers to be flexible by allowing the seller to essentially “rent” the home back temporarily as part of what’s called a “use and occupancy” agreement. This type of arrangement typically happens when the seller knows they will need additional time beyond the closing to secure new housing. In some cases, a buyer can still be under lease with their current housing, making it easier to delay moving in.

Frankly, we recommended steering clear of use and occupancy agreements if possible because it opens the door to a myriad of issues — from what happens if the house is damaged after closing to what happens if the seller does not move out by the negotiated date.

Let’s go over the basics you need to know.

How is a use and occupancy agreement negotiated?

Typically, if a seller knows they will need to occupy the home post-closing, they will communicate that upfront and both parties will negotiate what that will look like before a purchase agreement is signed.

Under this kind of arraignment, both parties will sign separate paperwork that stipulates the terms of the seller’s post-closing occupancy including the date they must vacate by, payments to the buyer, and what happens if the house incurs any damage after the transaction closes.

How much does the seller pay to the buyer?

The seller will pay use and occupancy payments for the duration they occupy the home after closing. The amount of this payment can be totally arbitrary, based on the new owner’s mortgage, or, in some cases, the seller will be allowed to stay for free. These agreements usually include a holdover penalty in which the seller is charged more if they do not vacate by the agreed-upon date.

The seller will also need to put money into an escrow account, and this will act as a security deposit in the event that any damage is done to the home post-closing. If the seller fails to vacate, money can be deducted from escrow for holdover penalties.

During their post-closing occupancy, sellers will keep their home insurance policy active during this time and bear the cost of utilities. There will also be a “hold harmless” agreement in place, which stipulates the seller cannot hold the buyer responsible for any damage incurred after closing.

How long is the seller allowed to stay? What happens if they don’t leave?

The duration can vary, but sellers do not typically stay more than two months after closing. This is because most mortgages require the new owners to be moved in within 60 days after closing.

During this time, legally is a licensee of the home, not a tenant, and does not hold the same rights as a tenant would.

What issues can arise from a use and occupancy agreement?

As previously mentioned, allowing a seller to stay post-closing can lead to messiness. If a seller refuses to vacate the property in time, it could lead to headaches, or worse, legal action.

Disputes can also arise over whether damage found in the home when the buyer takes it was present at the time of the buyer’s inspection. Leading up to closing, buyers usually do an inspection of the home and then will do a final walkthrough on closing day to check for any new issues not found during the inspection.

When a seller stays beyond the closing date, it simply extends the window of time between the buyer’s initial inspection and when the buyer will actually assume occupancy, leaving more time that a new issue will arise.

If the buyer finds a new issue — a broken dishwasher, for example — the seller may have to pay to fix it themselves or provide a credit. The seller can also contest the issue was present during the inspection and therefore the buyer lost their chance to for any relief. These sorts of disputes are not all that uncommon and can certainly make the property exchange process messier.

Conclusion

While circumstances can sometimes require creative solutions, we caution against the use and occupancy agreements for residential transactions.If you need an experienced real estate attorney to help you navigate your real estate transaction, reach out today for a free consultation. At Pederson Real Estate Law, attorney Charlene Pederson has over 25 years of experience guiding Connecticut clients through residential real estate transactions.