Respect Your Leaseback Agreement

Simply speaking, a seller's temporary leaseback begins when you sell your home. Many times, buyers and sellers will agree, in their purchase contract, to allow the sellers a certain amount of days past their closing and funding date to move out. Leasebacks are a negotiated agreement between parties and once signed, becomes binding on both parties unless amended by the written consent of both parties.

What are the reasons for a lease back?

1. The overwhelming main reason is that sellers want to ensure their homes actually close and fund before spending thousands of dollars in expenses moving out. I have seen the horror that occurs when a seller moves out before closing only to find out their buyer could not get final loan approval, was involved in an accident, lost their job, etc.
2. Sellers may be building a new home and need a lease back up to a few months in length, so they don't have to move twice.

Payment for the lease typically happens at closing, but sometimes the Title Company involved will not facilitate the transfer of rent monies to the buyer, and then, in that case, the seller would need to make sure the full rent payment is made to the new buyers.

Problems Associated with Temporary Leasebacks

1. Payment is not tendered in a timely fashion
2. Sellers move out early and expect a refund for the days not used. This seems to be the No.1 misunderstanding. The reality is that in a Temporary Leaseback, the "tenant" owes the full rent amount - period, plus any deposits that may be required, and it does not matter if a tenant leaves early. The temporary lease back specifically states, that full payment is due at the inception of the lease to the new landlord, who is the person who just purchased your home. Typical "temporary leasebacks" normally average a few days but can extend for up to 60 days, which is a hard stop limit when lenders are involved, unless the home was purchased as an investment property for the purpose of being leased.
3. Maintaining Renters Insurance. Sellers must communicate with their home owner's insurance provider to make sure they have the proper insurance in place when they transition from homeowner to a tenant.
4. Repairing any move-out damage. Buyers will do a walk through prior to closing to make sure their new home has not experienced any detectable damages. When it comes time to move out, if you have damaged the wall, and or an accident occurs that requires insurance intervention, make sure you contact your landlord, and insurance broker to file a claim to fully remedy damages. 
5. Sellers shut off utilities at closing. In a temporary leaseback, the utilities are normally paid by the tenant. Utility payment is an item of negotiation with the new buyers.
6. Sellers still don't move out on time and become a "hold-over." When a seller/tenant becomes a hold-over, the rent per day in many instances goes from a nominal amount up to $500 per day - ouch! Sellers who hold over can rack up a big rent bill fast, plus other costs for a breach of contract, for the days they stay in their home past the last day of their leaseback.

The takeaway from all of this:

Know what you're signing and always do the right thing. The greatest amount of flare-ups and misunderstandings can be nipped in the bud, simply by reading your lease agreement and when in doubt contact your Realtor for any clarification you may need. 

A real estate purchase involves a lot of money, closing costs, incidentals, important decisions; it's a time when emotions are flying, and frustrations are at their highest levels. However, if you take a deep breath, and register in your mind what your contract is directing you to do, then you will be able to handle your end of the bargain without incident. 

Our clients are never on their own. If you have questions about this type of agreement or your closing documents, just ask - we're here to help.