At first it seems like a good idea. The buyer wants to move in two weeks before closing. The house is empty anyway, so why not?

Situations where buyers want to move in before settlement -- or owners want to move out after closing -- are not uncommon. But rather than being simple accommodations between buyers and sellers, such arrangements can have a number of pitfalls if not properly structured.

What could go wrong?

• A buyer moves in a week before closing and damages a carpet. Who pays?

• A seller stays on a week after closing and then moves -- leaving behind 60 cubic yards of junk. Who cleans it up? Who pays?

• A buyer moves in two weeks before closing, paints the dining room orange, and the deal falls through. Now what?

• The property is located in a community with rent control. A seller stays on after closing. Is the seller entitled to protection under the local rent control rules -- including a first right to buy the property and financial assistance to move?

• The seller stays on after closing -- and refuses to move when his replacement property cannot be purchased. How does the buyer (and now the mortgage-paying owner) get into their own home?

• The seller allows the buyer to move in before closing -- but only if the buyer accepts the property in "as is" condition. In effect, the terms of the sale have been changed and the purchaser may lose important protections.

The list goes on but you get the idea: Moving in early and moving out late are not casual events. What both parties want are occupancy agreements to address the potent issues which can arise, a pre-settlement occupancy agreement if a buyer moves in early and a post-settlement occupancy agreement if owners want to stay on after closing.

What issues should such agreements address? Here are five big ones.

1. Is there rent?. Owners should charge rent for the use of their property. Such fees can be used to control usage. For instance, if a buyer is moving in two weeks before closing, there could be a daily rent, say $100 per day. But if closing is delayed, the rent could rise to $250 per day. Seen the other way, owners who stay on should be charged rent, say $100 a day for a given period and then $1,000 a day for each additional day to prevent unexpected occupancies.

2. Is there a deposit? There should be a deposit in case the property is damaged or someone refuses to move out in a timely manner. The bigger the deposit, the better.

3. How is insurance handled. Check with your insurance broker to determine if you have adequate coverage. If the kitchen catches on fire or the temporary resident slips on the front steps how much coverage do you have?

4. Are there adjustments at closing? If a buyer moves in early it may be possible to have adjustments at closing to cover costs. If a seller is staying on, it may be best to hold money from closing until the owner actually leaves the property. In either case, first check with lenders and closing agents to see what makes sense.

5. What is the condition of the property? Before occupancy there should be an inspection of the property to record it's condition. This is a good time to bring a video camera.

Occupancy agreements are complex documents which must mesh with sale agreements and local regulations. For details speak with local brokers and/or attorneys, as appropriate.

For more articles by Peter G. Miller, please press here.

Published: May 2, 2001

Use of this article without permission is a violation of federal copyright laws.