Five Items to Include in A Use and Occupancy Agreement
Wednesday, April 4, 2018
As everyone in the real estate field is aware, inventory is tight. As a result of the shortage, Sellers are nervous about listing because they may not be able to find a suitable home in a short period of time.
The Use and Occupancy Agreement (U&O) is a great tool to give prospective home buyers comfort that they will have more time to find a new home.
Here are the top five items to consider referencing in an Offer when proposing a “lease back” to allow a Seller to stay past the closing date:
- 59 days. If the Buyer is financing, limit the U&O term to 59 days. At closing, the borrower will have to sign an Occupancy form where they will represent that they intend to move into the property within 60 days of the closing.
- Per Diem. If the Seller stays past the closing date, the Buyer can reasonably ask for per diem carrying costs, which typically include the daily mortgage interest, taxes, insurance and condominium fee (if applicable).
- A Holdback. The Closing Attorney/ Settlement Agent should holdback funds at closing to enforce the U&O. A typical holdback is in the range of $5,000. The holdback can be released when the Seller terminates.
- Insurance. The Buyer will need a new insurance policy in place when purchasing. The Buyer should request a rent rider to cover the occupancy period. The Seller needs to check with their insurance agent to see if they can obtain a short-term rent policy or extend their current coverage.
- Utilities. Utilities should remain in the name of Seller until the termination of the U&O. Taxes should be part of the carrying costs. A final water reading should be done at closing and immediately before the Seller vacates.
There are other provisions that a skilled real estate lawyer can add to a U&O such as an indemnification, a penalty clause if the Seller stays past the termination date, and a no tenancy clause. All parties should consult with a real estate lawyer before finalizing the U&O.