TEMPORARY LEASE BACK FOR THE SELLER OR BUYER
A Sellers Temporary Lease Back is when the seller wishes to continue living in the home after closing for a negotiated, short period of time – usually a few days (although we have seen it as long as 90 days). When I represent sellers, I usually request a temporary lease because it allows the sellers to move out of the home only after they know their money from the closing is in the bank. Too many times, I've seen sellers move out and the buyers’ financing delayed or just falls apart. The seller is then stuck having to start over again and go through the entire process of trying to sell the house. In the meantime, the sellers may have committed to another property. Now, they are faced with the cost of paying two mortgages, or losing their earnest money and other cash outlays associated with buying the other home. They had thought everything was going to work out, despite not actually receiving the funds from the sale of their home yet. At this point, you, as the buyer, may also have lost your earnest money and all the cash outlays associated with getting to this point.
Because of this potential for disaster, don’t be surprised if the seller’s agent asks you to agree to a Seller's Temporary Residential Lease, although it is not required to sell a home. It is a short, two page document, and is not meant to replace the full-length lease contract, which is used for leases longer than 90 days. It is also not uncommon for sellers to request a lease when they need a short while longer to get enough cash to actually move.
The opposite counterpart to the temporary lease is a document known as the Buyer’s Temporary Residential Lease. In this case, the sellers become the landlord and the buyers become the tenants. This form is used when buyers wish to occupy the property prior to closing, perhaps because their existing lease is expiring and they anticipated being able to close on a certain date – which didn’t happen. It’s likely the agent representing the seller will advise the seller not to lease the property to you as the buyer, simply because the risk is high that something could go wrong, such as buyer’s remorse, or, worse yet, a further delay in a closing that may never happen. Imagine how complicated this would make the seller’s ability to market and sell the property!
Both of these temporary residential lease agreements must contain the following items:
Clearly identify the landlord and the tenant
State the property address
Explain the lease’s term, including a start date and a termination date
Establish a per diem rate. It is customary and usually fairly easy to get the seller’s agreement to cover the costs of PITI, including any HOA fees, on a per diem basis. To calculate the per diem rate, simply divide your mortgage cost by the number of days in the given month
Be sure to include a security deposit amount, which the tenant pays the landlord to cover damages to the property and/or to satisfy the tenant’s obligations under the lease (As the buyer, I would encourage you to insist on a security deposit, paid on the day of closing, by the seller. It would incent the seller to leave the property in good move-in condition when they move out.)
List the cost of the utilities, whether they are included or excluded
Include information about pets, whether they are allowed or not
Describe property alterations which are not allowed, such as nail holes
Detail the current property conditions and mention how to address repairs
List who handles and pays for repairs and/or maintenance expenses
Make sure at least one party maintains insurance, although usually both parties will. As a tenant, be sure your contents are covered.
Include an indemnification of the landlord from claims made against you by a third party
Possession of the property by the buyer as a tenant may change insurance policy coverage
Use language which addresses what happens in the event either party defaults
Establish reasons for termination of the lease
Describe any holding over, which are fees as damages for failing to terminate the contract
One last thought on temporary leasebacks and temporary residential leases: As a buyer, be sure to consult your insurance agent about changes of ownership and possession for limited purposes.
