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Many sellers in NYC face the problem of needing the proceeds from selling their existing home to close on their new one. It is scarce to see anyone close to the house or apartment they’re selling and the one they’re buying the same day.
One way for sellers to deal with this is called the “post-closing possession.” Under this agreement, the seller can remain in the property for a specified time after closing. This article covers everything you need to understand about post-closing possession agreements for buyers and sellers.
What is a Post-Closing Possession?What is a Post-Closing Possession?
The buyer agrees to let the seller remain on the property for a set period after the closing through a post-closing possession agreement. It’s great for the seller as it means they won’t need to move to a hotel, but it presents some risks for buyers. 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?What are the Key Provisions?
A typical NYC post-closing possession agreement will include, at a minimum, the following:
Length of OccupancyLength of Occupancy
Since the average closing time on an NYC property is 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 PossessionCost 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 other property expenses.
Escrow AmountEscrow Amount
The escrow agreement protects the buyer’s funds; a portion of the sales proceeds will be held in escrow until the seller has vacated the premises. This negotiable amount is typically 2-3% of the sale price.
Holdover FeeHoldover Fee
To further; ease any concerns for the buyer, a holdover fee included for the seller should overstay the agreement’s length. A daily, weekly, or monthly fee can be deducted from the escrow account.
Managing Agent/Building ApprovalManaging 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 you can finalize the contract. They’ll be very wary of allowing occupancy for more than 60 days.
Lender-ApprovalLender-Approval
Like co-op buildings, mortgage lenders are wary of allowing seller occupancy for more than 60 days. The risks involved are too high.
Liability Insurance and IndemnificationLiability Insurance and Indemnification
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.
Occupancy RightsOccupancy Rights
Lastly, the agreement must spell out who has the right to occupy the property post-closing.
Buyer ConsiderationsBuyer Considerations
Because all the risks of a post-closing possession agreement fall on the buyer, they must consider protecting themselves adequately.
Make sure the word ‘Lease’ is not mentioned in the agreement.Make sure the word ‘Lease’ is not mentioned in the agreement.
A costly eviction process must be started if the seller refuses to leave. This can be avoided by having the document state that the occupant has a license rather than a lease to stay on the property. The agreement must use the word ‘License’ rather than Lease.
Include a substantial damages clauseInclude 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. The penalty should be more than what it costs to stay in a hotel and more than the apartment would rent for this to work. This is likely to be the most fraught aspect of the negotiations.