During the increase in buyer demand for properties in the Hamptons market, in addition to bidding wars, cash deals, and buyer financing after closing on the property, situations arose that placed another demand on buyers: the condition of the sale that allowed the seller to remain in occupancy beyond the transfer of title to the buyer.
In order to gain expertise regarding this subject, I spoke to Sandra Saiegh, a New York State attorney.
By way of introduction, Sandra is originally from Argentina. She has practiced law for over 30 years. She was admitted to the New York State Bar in 1995. In 1997 she moved to Manhattan to work for the United Nations. Her expertise concentrated on areas of procurement and logistics, drafting, negotiating and managing complex commercial contracts. Over two years ago she moved full time to the North Fork and took over a local law practice, focusing on real estate transactions as well as trusts and estates. Sandra explained that her experience dealing with complex contracts with multiple parties and delicate negotiations has translated very well into working with buyers and sellers in real estate contracts.
JV: What are some of the reasons a seller would require a buyer to allow the seller to remain in occupancy after the transfer of title and why would the buyer agree?
SS: “The reasons vary. The seller may need the proceeds of the sale in order to buy a new home. Sellers may need more time to remove their possessions from the sold property, especially if they are vacating their primary residence. In these situations, a buyer would offer a post occupancy agreement as leverage to get their offer accepted.”
JV: Are there ever situations where a buyer may want to close and not take occupancy?
SS: “Yes. Especially with the increase in interest rates. Even if the buyer is paying cash, they may still want to finance the purchase, and the buyer has locked the interest rate on the mortgage loan and needs to close by a certain date. In those cases, buyers will ask sellers to sign a post-occupancy agreement in order to close before the rate lock expires.”
JV: With respect to these agreements, what are the conditions that the buyer would require of the seller?
SS: “One would be that the seller vacates on a specific date, before 30 days, in order to avoid creating a landlord-tenant relationship. If there is a lender, they would not normally agree to more than 30 days.”
“There is a per diem for the occupancy days that includes the buyer’s real estate taxes, mortgage interest, and insurance. The seller may continue to pay the utilities during occupancy.”
“An amount from the proceeds of the sale is escrowed with the seller’s attorney, usually around 1% of the sale price. The seller’s attorney is authorized to pay sums to the buyer if the seller does not timely vacate and deduct from this deposit for each day the seller remains in occupancy.”
“The buyer will be entitled to a significant sum on top of the per diem for every day that the seller remains, usually up to $1,000 a day, to motivate the seller to vacate on time.”
JV: What are some of the problems that might arise despite the terms of the agreement?
SS: “Sellers who remain in occupancy beyond the closing put an unfair risk on the buyer despite the post occupancy agreements. One of the most critical is the creation of a landlord-tenant situation, which has been exacerbated by the governor’s Executive Orders regarding Covid and the New York State Tenant Protection Act passed in June, 2019 which would require the buyer to initiate eviction proceedings in court, consuming more time and engaging a land-lord tenant attorney to litigate.”
“Another problem is that of insurance. Since the seller no longer owns the property the buyer may have to purchase a commercial insurance policy.”
JV: What about a situation whereby the seller doesn’t vacate, and the buyer must vacate his existing home as required by contract with his buyer?
SS: “That would create a headache for the buyer who may have to find a place to stay and may incur important additional costs. Attorneys do not like post closing agreements for all of the reasons we have discussed. My advice is if any of the parties does not feel comfortable with the seller staying beyond the closing date or they can’t agree on the terms of the post closing agreements, they should agree to postpone the closing date.”