Question: The listing sheet says: “Seller requires Use and Occupancy until January 7, 2022.” What does that mean?

A Use and Occupancy Agreement is a contract that allows a seller to stay in the property after closing. Although there are templates online, my advice is to have an attorney write or review any Use and Occupancy Agreement you are being asked to sign as part of your purchasing of a house.

What is in a Use and Occupancy Agreement?

Typically, a Use and Occupancy Agreement is added to a Purchase and Sales Agreement (the purchase contract in Massachusetts), naming specific dates for the closing and specific dates for the seller to be allowed to remain in the property after closing. The agreement will define the property that is being occupied and who may live there during that period.

To protect the new owners, a Use and Occupancy Agreement will state that the former owners are not tenants (and do not have rights as tenants). Lawyers go grey every time a new owner uses the term “rent back” instead of saying Use and Occupancy!

The buyer and the seller agree to a price that the former owners will pay to live in the house after closing. The buyer and seller agree about how utilities are paid for during this period.

There is usually a deposit held in escrow against any damage to the property while the former owner is there or against them not moving out on time.

The buyer and seller agree about who will insure and maintain the property while the former owners live there.

The buyer and seller agree on a standard of condition expected when the former owner leaves. Usually, the buyers will document the condition before closing and again when the former owners leave.

 

What does a Use and Occupancy Agreement do for sellers and buyers?

For sellers:

Sellers can ask for a Use and Occupancy until a certain date. Once the property sells, the sellers can still live there until that date. The sellers can spend the profits from the sale of the house before moving out.

The sellers may need to sell before they can afford to buy their next property. They qualify to borrow on their next property once the current house closes. If they can sell, then live in the property for a few more months, they can purchase their next property without still having a mortgage on the first house.

Sometimes sellers need more time to move but still want to sell in the hot part of the market. This is common with older sellers who may need to pay for professional assistance to sort and pack up their “forever” home. If money is not tight, these sellers could just market the property in the hot market and set a longer closing date than usual. But, if the Sellers have expenses they can’t cover without the house’s equity, a Use and Occupancy allows them to stay in the house and move out comfortably.

Sometimes sellers have chosen a to move to a house that is being built. Having a Use and Occupancy gives them the ability to use the equity from the house they are selling to pay the builders. Having a Use and Occupancy also cushions them if the construction is delayed.

 

For buyers:

Sometimes a buyer needs to move in before closing. This can happen if the buyer is relocating from another part of the country. It will add expense and inconvenience for that buyer to move twice: once to a short-term residence or hotel, and again to their purchased property after closing.

In my practice, I have never had a buyer use a Use and Occupancy Agreement to move in before closing. Instead, we plan on and work towards having a closing ahead of the buyer’s moving deadline. It takes about four weeks to close on a purchase with a mortgage, or one to two weeks to close on a cash purchase; we plan ahead.

That favor — being allowed to move in a few weeks early — is a big favor from the seller. We find that the buyer will get the best price and terms on their purchase if they move in after closing, which is how it is typically done.

 

A Use and Occupancy Agreement is a contract. Attorneys who work on real estate purchases understand the legal ramifications in detail.