Use and Occupancy Agreements: Advantageous?

Use and Occupancy Agreements: Advantageous? By Laraine SchwartzOne of the questions I am frequently asked by real estate clients is, “What if I am unable to close on the sale of my current home and the purchase of my new home on the same day?” or “What if I need additional time to move after selling my home?”

These concerns usually fall into two types of circumstances:

  • Scenario A: A buyer is purchasing a home but due to unforeseen circumstances is unable to close the deal until some point in the near future. While it may make sense for the seller to allow the buyer to move into the property early and live there until the date of the closing, we need to look more closely at the issues that may arise.
  • Scenario B: A person switching homes has already closed on both sale and purchase but needs additional time to move from one home to the other.   

Both types of situations may be handled by an arrangement known as a Use and Occupancy Agreement. But it is important to make sure all parties are fully protected.

The person who stays on living in the residence under the Use and Occupancy Agreement is not a tenant and is not renting. Rather the owner is paying a “use fee” to permit them to stay on the premises for a limited time under a specific arrangement. The amount of the use fee is usually the same as the daily prorated costs to maintain the property (mortgage interest, real estate taxes, insurance and maintenance if it is a condominium).

Here are some issues to keep in mind about Use and Occupancy Agreements:

  • The Use and Occupancy Agreement can be a win-win for both parties: In the case of Scenario A, the incentive for the buyer is clear: A place to live until the closing date on the house. The incentive for the sellers is that they will not have to fund the property itself (such as the monthly mortgage and maintenance) while waiting for the deal to close.

    The drawbacks in permitting a Buyer to enter the premises before buying are with the risk of liability involved and the possibility that the Buyer may not finalize the closing once they move into the premises. Sometimes an alternative is to agree to a Use and Occupancy for the Buyer’s possessions to be stored in a basement or garage with the Buyer obtaining full insurance as protection against the risks.

  • In Scenario B, this is an altruistic gesture on the part of the new owner, permitting the person who just sold the property a little extra time to ensure a hassle-free move.   
  • Many of the concerns can be dealt with contractually: The key is to make sure that all possible contingencies are provided for in the Use and Occupancy Agreement.

This document should specify:

  • The exact period of time that the non-owner can stay in the house
  • The amount that he or she is to be charged for use of the home
  • What happens if the non-owner overstays
  • What happens if the non-owner causes damage to the property
  • Escrow to cover any potential damages to the property

If you find yourself in one of the two situations described above, make sure you see a real estate attorney before signing a Use and Occupancy Agreement. It is in your best interest to make sure that such a contract is fair and will not put you at risk.

Larraine Schwartz, Lobbying for Immigration Reform

Laraine E. Schwartz, Esq.
Winograd and Schwartz Attorneys at Law, PC
www.winogradandschwartz.com
Laraine@winogradandschwartz.com
Tel. (201) 770-9990

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