WHAT IS A POST-POSSESSION AGREEMENT AND SHOULD I USE ONE?

In the world of residential real estate, it’s not uncommon for a seller to ask a buyer to retain possession of the premises being transferred for a certain period of time following the closing. Although you might ask why a buyer would even consider such a request, sellers typically inquire as to this type of accommodation when faced with some circumstance that beyond their control. Such circumstances usually involve sellers waiting on contingencies of their own to be satisfied, like the completion of a new home build or their own purchase to close.

When faced with a seller asking for post-possession as a component of closing, buyers are confronted with one of a few choices. Depending on your circumstances, the terms of the contract and when the seller has asked for post-possession, the simple reality is that a seller may have no basis to retain possession after the closing. Under such circumstances, the buyer is under absolutely no obligation to allow the seller to stay in the home. The result may seem harsh, especially if the seller is claiming they will be homeless until whatever predicament their facing resolves, but so go the whims of real estate. It's not a buyer's obligation to bend over backwards to accommodate a seller in an unfortunate situation. That said, karma does have a funny way of exacting its revenge, so keep that in mind before disregarding the needs of your seller. You never know when you might be in that same position.

If circumstances allow, the best alternative to avoid headaches and post-possession issues is to simply postpone the closing until the seller has resolved whatever outstanding issue(s) necessitated the post-possession in the first place. So long as its not an unduly burdensome delay that causes you to suffer damages, especially of the financial variety, taking possession of a premises in vacant condition at close is almost always preferable.

When taking vacant possession isn’t possible, the final alternative is to execute a post-possession agreement. These agreements allow a seller to remain in the property for a certain period of time following the close, and they should be finely tailored by counsel to meet your particular circumstances. There are risks associated with allowing someone to remain in the premises after closing, and it is your goal to minimize those risks as much as possible if you decide to allow them to stay.

Some of the unfortunate but very real considerations that you may face if the seller enjoys an extended stay are: what happens if they stay past the agreed upon term and won’t vacate? What happens if they damage the premises while occupying it? What happens if a guest of the seller is injured on the premises while occupying it? Who pays your carrying costs while the seller is occupying it? And what happens if the seller takes or removes something from the premises that they weren’t supposed to when they finally do vacate? At a minimum, post possession agreements should provide for a few basic things to address some of these potentialities.

The first thing I would recommend is that the post possession period be for a short a time as possible. These agreements are usually intended to cover a matter of days, and not really weeks or months. Second, the agreement should contain language affirmatively stating that NO landlord tenant relationship has been established or should be construed by its execution. Third, the agreement should set forth not only a per diem daily amount to be paid to the buyer during the seller’s ongoing occupancy of the premises, but it should require the seller to hold back a set escrow amount to be paid over in case of damage to the property or if the seller stays longer than agreed. Finally, the agreement should require the seller to turn over the premises in broom clean condition at the time he vacates, just as he would have been required to do had they vacated at the time of close. There are certainly other things that you might consider including in the agreement (i.e., seller maintaining insurance coverage during occupancy, etc.), but I would suggest that the above are the bare minimum essentials.

While post possession agreements have their place and are certainly tolerable when circumstances dictate, if you have to use one, at least do so with a full understanding of the potential risks involved. Some deals are inherently more risky than others, so always assess your particular circumstances to determine the advisability of utilizing a post possession agreement.