Post Occupancy Agreements Explained
What is a post occupancy agreement? A post occupancy agreement or, a temporary post occupancy agreement in Florida is sometimes used by buyers and sellers to allow for a delayed closing or early possession of property before closing. It is a contract between both the buyer and seller for the conveyance of an interest in real estate in the future and usually tailored to suit the specific needs of the parties. Typically, the parties have executed a residential purchase and sale agreement and requirements such as financing or inspections are satisfied. However, there may be circumstances where the sale cannot close on the agreed upon closing date for reasons such as the buyer’s lender is delayed in closing or some other third-party issue unrelated to the transaction has delayed closing. To avoid dealing with the expense of extending the due diligence period or mortgage commitment and transferring the contract to a new closing date, the parties can execute a post-occupancy agreement.
The consideration for the temporary post occupancy agreement is typically a set amount such as $500-$1,000 which is paid by the party occupying the property upon execution.
Agreements of this nature may also be used by a selling party who may have a home under construction that won’t be ready until sometime after the sale of their present home, in such a situation they would use a post occupancy agreement to allow them to stay for a period after the closing of their current home, subject to the terms of the agreement. Because this type of agreement can be customized to fit the needs of the parties , use of a post occupancy agreement could include things such as the buyer paying the seller rent for the time they occupy the property after closing while the seller would agree to pay the buyer for any utilities during the same time period. There can be additional stipulations included into a temporary post occupancy agreement, which are subject to negotiation between the parties.
While many instincts might be to execute a lease or extension of the closing date letter in lieu of a temporary post occupancy agreement, such an agreement is preferable. A traditional lease is entirely separate from the sale of real property, whereas a temporary post occupancy agreement is usually tied to the real estate transaction and allows for easier enforcement against the buyer. These agreements are often harder for buyers to break versus the terms of a typical lease that may allow the buyer to more easily walk away. Tenants usually cannot be forced to vacate within 3 days unless an eviction has been filed with the local court (also known as "forcible entry and detainer"). However, if the sale of the property is being specifically enforced through a temporary post-occupancy agreement it allows the ability to require the buyer to vacate the property after the closing and to place a lien on the buyer’s new property for unpaid money owed to the seller since the seller has already conveyed their interest in the home being sold.
A temporary post occupancy agreement does not mean that the seller must abate their time table for moving, however. Typical timelines of 45-90 days are granted unless otherwise agreed up by both parties.
Legal Considerations in Florida
It is important to understand the statutory requirements Florida requires in a post occupancy agreement. In Florida, the legal requirements for a post occupancy agreement include the following:
- Written Agreement: Unlike some other states, a written agreement is not a legal necessity for the enforceability of a post occupancy agreement. However, from a practical perspective for a post occupancy agreement to stand up in litigation or arbitration you will want your agreement to be in writing. Additionally, if the Seller is receiving proceeds from the sale of the property at the time of the closing it would be wise to have a written agreement.
- Full Payment Prior to Seller Occupancy: Florida requires that a sale proceeds to the Seller prior to the Seller occupying the property. It is worth noting that this same rule applies to sellers who hold a purchase money mortgage on the property in question-a post occupancy agreement is required because a purchase money mortgage would not fall into the statutory exception for seller financing under Fla. Stat. § 718.110(5)(a)(5).
- No Special Assessment Payments: Florida law prohibits special assessments after closing when a seller agrees to a post occupancy agreement. Further, it is important to note that the contractual right to collect special assessments after closing is questionable.
- Non-Assessment of Property Owner’s Association Fees: Similar to the requirements of Fla. Stat. § 718.110(5)(a)(5), Florida law requires that a seller of real property must waive the right to collect property owner’s association fees from a buyer who occupies the property prior to the closing. This prohibition on a buyer’s obligation to pay over property owner’s association fees is specific to Florida homeowners associations, condominium associations and nonreciprocal community development districts.
Essential Features of the Agreement
In a post occupancy agreement, both parties are interested in protecting themselves and covering the liability that might arise from problems associated with an unfinished property. In addition, a contract for sale might continue to be in effect until the closing during the post occupancy period. Some key components that should be included in a post occupancy agreement include:
- Duration: how long the purchaser can occupy the property
- Rent: how much rent the purchaser is required to pay and when it is due
- Security Deposit: how much security to be paid and when it is to be returned in accordance with the Residential Landlord Tenant Act and the lease between the parties
- Maintenance of Property: what entity is responsible for maintaining and caring for the property, inside and out, during the interim period
- Liability: who is liable for damages caused by third parties to the structure and property, security deposit should be used for repairs of the structure and landscaping damaged during the occupancy by the purchaser
Pros and Cons
While there are benefits to entering into a post occupancy agreement, there also are risks, and the odds of the latter happening do increase with the length of time the buyer occupies the property after closing. A few examples include: The seller risks exposure to being sued on an open deed (a subject for a later entry) if he does not pay off remaining mortgage and home equity line of credit. This is a very real risk for homes in South Florida that may have appreciated rapidly (think 30%-50% in the past three years alone) and where the homeowner has taken a second mortgage out to finance things like renovations , divorce, living expenses after losing a job or to pay off credit card debt to keep the credit report clean while the homeowner may be underwater on the property. The primary risks to the buyer include liability for the down payment, deposits, closing costs, taxes, insurance, interest and all other expenses associated with ownership of the property for the occupancy period if the deal fails and the seller is unable to close, the seller fails to vacate or the seller does not complete contracted repairs prior to closing.
Drafting Advice
In the spirit of proactive preparation and to avoid common pitfalls, here are practical tips for crafting a comprehensive and enforceable post occupancy agreement: A post occupancy agreement can provide a useful safeguard when there is a delay in the delivery of real property from buyer to seller. However, the necessity and the benefit of such a tool is often overlooked in the rush to meet transaction deadlines. A post occupancy agreement should therefore be discussed at the early stages of an agreement and considered an alternative for buyers if closing deadlines cannot be met. Consultation with legal counsel when preparing post occupancy agreements is critical in order to ensure that all aspects of each individual sale, and all terms and conditions set by the parties, are properly included. It is not sufficient to copy a template when preparing a post occupancy agreement and the need for legal advice is demonstrated in the context of many aspects of the transaction. Legal advice serves to protect both parties by ensuring that the agreement meets all legal standards that may fall within such a far ranging context.
Dispute Resolution
While the majority of post occupancy agreement matters are resolved amicably, disputes may arise in some circumstances. The most common grounds for disputes involve: A shortfall of post occupancy deposit funds. Because the purpose of the post occupancy agreement is to cover incidental expenses, any moneys not expended by the buyer during the duration of the post occupation should be returned to the seller under terms set forth in the agreement. In some cases , a seller may seek reimbursement for damages that occurred prior to closing or other damages they contend exceed the value of the security deposit. A disagreement as to whether the damage to the home occurred after the closing date. In the event a dispute arises, mediation may be possible. Mediation of disputes can help parties resolve matters without resorting to litigation. Qualified mediators will attempt to bring the parties together and facilitate a resolution of the matter. Litigation may be necessary in some cases. This action may require the presiding court to establish the terms of the post occupancy agreement.