Many sellers in NYC face the problem of needing the proceeds from the sale of their existing home to close on their new one. As such, it’s scarce to see anyone close to the house or apartment their selling and the one they’re buying on the same day.
One way for sellers to deal with this is called the “post-closing possession”. Under this agreement; the seller is allowed to remain in the property for a specified amount of time after the closing. This article covers everything you need to understand about the post-closing possession, for both buyers and sellers.
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What is a Post-Closing Possession
Through a post-closing possession agreement, the buyer agrees to let the seller remain on the property for a set period after the closing. It’s great for the seller as it means they won’t need to move to a hotel; but for buyer’s, it presents some risks. Because of this, you’ll usually only get a buyer to agree to it if it’s made a condition of the sale.
What are the Key Provisions of the Post-Closing Possession?
A typical NYC post-closing possession agreement will include at a minimum the following:
Length of Occupancy
Since the average closing time on an NYC property in 30-60 days; the standard occupancy limit through the agreement is 60 days. If the unit is in a co-op building or there are lenders involved it’s challenging to get any more than this.
Cost of the Post-Closing Possession
To stay on the property, the seller agrees to pay all carrying costs for the duration of their occupancy. This includes the mortgage payment, monthly maintenance fees, utilities and any other expenses related to the property.
The escrow agreement is to protect the buyer’s funds; a portion of the sales proceeds will be held in escrow until the seller has vacated the premises. This amount is negotiable but is typically 2-3% of the sale price.
To further; ease any concerns for the buyer, a holdover fee is included for the seller should they overstay the length of the agreement. It can be a daily, weekly or monthly fee which is deducted from the escrow account.
Managing Agent/Building Approval
Each co-op and condo building has its own rules regarding post-closing possession agreements. These will need to be worked out before the contract can be finalized. They’ll be very wary of allowing occupancy for more than 60 days.
Like co-op buildings, mortgage lenders are very wary of allowing seller occupancy for more than 60 days. The risks involved are too high.
Liability Insurance and Indemnification
An agreement without any provision stating that the seller agrees to maintain liability insurance and indemnify the buyer puts the buyer at extreme financial risk. It is crucial for the buyer that this provision is included.
Lastly, the agreement must spell out clearly who exactly has the right to occupy the property post-closing.
Because all the risks of a post-closing possession agreement fall on the buyer; they need to make some considerations to protect themselves adequately.
Make sure the word ‘Lease’ is not mentioned in the agreement
It is crucial that the agreement uses the word ‘License’ rather than Lease. If the seller refuses to leave a very costly eviction process has to be started. This can be avoided by having the language of the document state that the occupant as a license rather than a lease to stay on the property.
Include a substantial damages clause
To protect against the seller overstaying their term of occupancy a significant penalty should be included for each day they overstay. For this to work the penalty should be more than what it costs to stay in a hotel and more than the apartment would rent for. This is likely to be the most fraught aspect of the negotiations.