What is a post occupancy closing agreement?
A post occupancy agreement is a written agreement that allows a seller to remain in the property post-closing for a specified period of time. The agreement can set forth how utilities are being paid, how real estate taxes are being calculated, and insurance requirements between the parties, among other considerations. Post occupancy agreements are often used when a seller needs additional time to move out.
Post Occupancy Considerations:
1. Occupancy Duration and Occupancy Charge
The occupancy agreement should state the day and time that the seller’s occupancy ends. A buyer who has lending should make sure that his/her lender is okay with the occupancy period, as the lender will likely require that the buyers take occupancy of the property within a specified period of time.
The occupancy charge is often represented as a per diem (per day) rate. If the seller moves out of the property before the end of the occupancy period, the agreement can specify whether the seller is entitled to any unearned portion of the occupancy charge.
2. Security Deposit
While not required, some buyers may wish to protect themselves by requesting a security deposit. If the seller damages the property or has unpaid repair invoices, the buyer can withhold a portion of the security deposit. The parties should also consider who holds the security deposits, whether that be the title company or the buyer/new owner, and what is required to release the security deposit.
3. Prorations and Utilities
The parties should specify whether real estate taxes and homeowner’s association fees, if applicable, are to be prorated through the day of closing or to the end of the occupancy period. The buyer/new owner could choose to leave the prorations as of the day of closing and instead have the seller compensate the buyer for these amounts through the per diem occupancy charge. As for utilities, it usually makes the most practical sense for the seller to keep the utilities in his or her name until the occupancy date.
4. Keys, Owner Access, and Maintenance
Keys, owner access, and maintenance provisions of a post occupancy agreement all share one thing in common – risk allocation, and will vary depending on the buyer’s/ new owner’s risk tolerance. The seller, as occupant, is responsible for maintaining the property and keeping all components of the home in good working order. The maintenance provision can come into play in the event that there are repairs needed over a certain dollar amount. The parties specify what that dollar amount is, with the understanding that any repair over that dollar amount becomes the buyer’s/ new owner’s responsibility and anything under that amount is the seller/occupant’s responsibility.
Keys and owner access come into play here to carve out an understanding of what happens if there is a repair that exceeds the specified dollar amount and becomes the buyer’s/ new owner’s responsibility to repair. How many hours of advance notice must the owner give the occupant in order to access the property for inspection or repair purposes? Are there other purposes that the owner may exercise their advance notice for – such as pool maintenance or yard work? And how many keys should each party have?
5. Insurance
Because title transfers at closing, the buyer/new owner should have a homeowner’s insurance policy in place effective as of the day of closing; there should be no gap in property coverage simply because the seller remains in possession. The seller/occupant should not only maintain personal property insurance for the contents of the home, but also personal liability insurance.
It is best practice for each party to consult with their respective insurance agents to determine whether it is advisable that additional insurance endorsements be included, especially in extended occupancy periods or for properties with pools. Proof of insurance amongst the parties is another consideration.
What happens if the seller refuses to leave?
Wisconsin law states that a person holding possession of a property as part of an offer to purchase is not a tenant. [1] This means that an owner would not need to follow Wisconsin state law eviction procedures. To plan for what happens in the situation of an occupant who refuses to leave, the occupancy agreement can include a “loss of use” provision, which would essentially state that for every day the seller refuses the leave, they are subject to a daily “loss of use” fee. The seller/occupant could also be responsible for the buyer/owner’s attorney’s fees as well as compensating the buyer/ new owner for any damage that may have occurred. To recover these amounts, the buyer/ new owner would need to bring legal action against the occupant in court.
Schedule a consultation with Wynn at Law, LLC today to discuss your real estate purchase or sale.
For assistance with ensuring that your post occupancy agreement makes sense for your risk tolerance, whether you are a buyer or seller, contact Wynn at Law, LLC today for a consultation at 262-725-0175 or visit our website’s contact page. Wynn at Law, LLC is based in Southern Wisconsin and has offices conveniently located in Salem, Delavan, and Lake Geneva, Wisconsin.
[1] See Wis. Stat. 704.01(5)
