Post-Closing Occupancy Agreement in a Real Estate Transaction

A post-closing occupancy agreement is an agreement where the buyer allows the seller to occupy the property for a certain time after closing. Typically, the buyer and seller agree on a time period for seller to occupy the property and, in exchange, seller agrees to pay buyer rent and/or place an amount in escrow. The escrow deposit is usually released back to the seller at the end of the post-occupancy period if the property is in the same condition it was in at closing.

I have seen many issues with post-closing occupancy arrangements and post-closing occupancy agreements. It is essential that the post-closing occupancy agreement is clear and both parties agree to its terms. In addition, the escrow agent needs to be clear on when the escrow agent can release the escrow deposit, if any, and to whom.

Aspects of any post-closing occupancy agreement in a real estate transaction that need special attention include the following:

1. Written Agreement – The post-closing agreement should always be in writing.
   
   
2. Escrow – The parties should agree for the closing agent to hold a sum in escrow that is to be released at the end of the post-occupancy period if the property is in the same condition it was in at closing.
   
   
3. Damage – The most common issue I have seen is buyers attempting to claim the seller’s escrow deposit because the property was allegedly damaged and not in the same condition it was in at closing. When I ask for proof of damage, I have been sent pictures of a hair follicle (I am not kidding), cobwebs, dust, a mildly dirty fridge and other similar “damage.” The post-closing occupancy agreement should be clear about what constitutes damage that could result in a seller’s deposit being paid to the buyer.
   a. The post-closing occupancy agreement should also be clear that damage caused by seller that will result in a loss of seller’s escrow deposit is only damage that was caused during the post-occupancy period.
   
   
4. Maintenance – Make sure the parties are clear about maintenance obligations. Usually, the seller is responsible for maintenance during the post-closing occupancy period.
   
   
5. Inspection – The parties need to inspect the property at closing and take pictures of the property at that time. The buyer should have the opportunity, during the post-closing occupancy period, to inspect the property on reasonable notice (ex: 48 hours advanced notice). At the end of the post-closing occupancy period, the seller should take pictures of the property once the seller vacates. The buyer can perform a final walkthrough inspection at the end of the post-closing occupancy period and decide if the escrow deposit, if any, can be released back to seller.
   
   
6. Utilities – The parties should agree on how utilities are to be paid during the post-closing occupancy period. Typically, the seller keeps utilities in seller’s name during the post-closing occupancy period.
   
   
7. Alteration – The post-closing agreement should address whether the seller has any right to decorate or alter the property in any way during the post-closing occupancy period.
   
   
8. Risk of loss – If the property is damaged by fire or other casualty during the post-occupancy period, or prior to seller’s vacating of the property, the parties need to agree on who will be responsible for the damage. Typically, seller should be responsible during the post-occupancy agreement.
   
   
9. License vs. Lease – The post-occupancy agreement should identify whether the arrangement is a license or a lease. If the arrangement is a license, then landlord tenant court can be avoided if there is a dispute. Landlord tenant courts are often overwhelmed with cases and can cause a dispute to last longer than needed and landlord tenant court is often more favorable to the tenant, which is the seller in a post-occupancy agreement.
   
   
10. Holdover – The post-closing occupancy agreement should address what happens if the seller does not vacate the property at the end of the post-closing occupancy period. For instance, the post-closing occupancy agreement can indicate that if the seller does not vacate, then seller will be considered a holdover tenant in accordance with state law.
    
    

Overall, it is important to have a thorough and clear post-closing occupancy agreement that is understood by buyer and seller. Both parties and the escrow agent should understand their obligations to avoid problems before they start.