With most home sales the buyers do not move into their new home until escrow closes. However, there are times where situations make it difficult for the buyers to wait out the closing, and both parties agree to allow the buyers to move in prior to closing, via an Interim Occupancy Agreement. These agreements are tricky and can be fraught with legalities, so if you are considering becoming party to one, make sure you understand how they work and what could happen if things don’t go according to plans.
An interim occupancy agreement allows the buyers of a home to move into the home as tenants during the escrow period, before title has transferred into their name. The parties to the contract agree to a daily rate, and usually the buyers will pay for utilities and maintenance during this interim period. It can be a blessing for some buyers, who may have nowhere else to live until their home closes, especially when the home is vacant. It can also be great for sellers who do not live at the property, as their home will be maintained during the remainder of the escrow period.
Most lawyers, myself included the majority of the time, will advise against interim occupancy agreements. Here are some things to consider when determining whether such an agreement will work for you as a buyer or seller:
1. Escrow Problems. One has to really take into consideration the status of the escrow before agreeing to such a scenario. As a seller, it is important to note that if there are any problems with escrow and it ends up NOT closing, you will now have tenants in your home that need to be evicted. Evictions can be difficult if there are any issues, and there could be damage/wear and tear to the home. Interim occupancy agreements have specific language that address many issues, but the fact of the matter is that the seller may have to deal with these and other problems if things do not go smoothly.
2. Injuries on the property. Another thing to consider as a seller is what could happen if someone is injured or even killed on the property during the time the buyers are tenants. Again, most agreements have language that relieves the sellers of liability in such cases, but in today’s litigious society it is something to think about when deciding whether to enter into such a contract.
3. Unforseen issues. Another point to consider is what happens if the buyers (after moving in prior to the close of escrow) claim there are issues with the property about which they were unaware, and then ask for a price reduction, credit, or to renegotiate with the sellers. Again, many agreements have language addressing such issues, but if it were to happen it could put the seller in a difficult situation, where s/he is forced to either negotiate or have to deal with eviction and a possible sticky set of circumstances.
Sellers are not the only ones who have to be careful in the case of interim occupancy agreements. Buyers are also taking a big risk moving into a home that is not yet theirs. If something does go wrong and escrow is unable to close, the buyers will have to incur double moving expenses to get out of the home, and may even have to move several times before they are able to purchase another home.
Although it is important to approach these agreements with caution, there ARE situations where I believe they can actually hold value for all parties involved. One of these situations is where the buyers’ loan has been fully approved and docs have been signed, and everyone is simply waiting to record. Oftentimes there could be a weekend in between signing and recording, and in such a situation I see no harm is allowing the buyers to move in early. There are other times when such agreements may benefit both parties more than the risk involved, so it is important to weigh your specific circumstances, speak with your agent, and consult with an attorney before making a decision to sign such an agreement.