Q. I have contracted to purchase a house and will go to settlement shortly. Upon settlement, I will enter into a lease with the current owners so that they may remain in the house until the end of February, when their new house will be completed. Obviously, at settlement, the house still will contain the present owners' possessions. How may I protect myself from being liable or responsible for problems with the house that I might miss solely because it will not be empty during the walk-through before settlement? What provisions should be included in my lease, and what other precautions do you recommend that I take to ensure that the house will be turned over to me in its current condition?
A. You are smart to be thinking of this problem in advance. All too often, a buyer agrees to let the seller stay on for a few days (or even weeks or months), but does not put in writing the answers to the very important questions you have raised.
First, you should look to the standard-form contract that you signed with your seller. I suspect it contains language to the effect that the seller, "at the time of settlement or occupancy (whichever occurs first), will leave premises free and clear of trash and debris and broom clean, will leave the electrical, plumbing, heating, air conditioning, and any other mechanical systems and equipment included in this contract in operating condition and will deliver the premises in substantially the same physical condition as of the date of final ratification of this contract. . . . "
At settlement, you should amend this contract -- through an addendum -- to change the words "whichever occurs first" to "whichever is later."
Then, you should enter into a "postoccupancy agreement." It is important that this document not be a lease, because it inadvertently could give the seller additional rights under applicable landlord and tenant laws. This is especially important in the District of Columbia, where the laws clearly favor tenants' rights. This document should make it very clear that you are giving the seller a "license" to stay in the property for a short time, but that it is not a lease and that the normal landlord/tenants' rights do not apply.
The postoccupancy agreement also should have a termination date, whereby the seller agrees to be completely out of the property by a certain date. The seller also should pay a security deposit at the settlement table, which the title attorney can hold in escrow until the seller has vacated and you have had an opportunity to inspect the property.
One question often raised is how much rent to charge under these circumstances. Keep in mind that you are not renting the property to the seller as if you were a landlord. Rather, you should figure out your daily operating expenses, including -- but not limited to -- the principal and interest payments you will be making to your lender, the real estate taxes and the insurance premiums. Your title attorney or real estate agent can help you ascertain the exact amount on a daily basis, and the rent thus shall be based on this total amount.
You also should have a provision whereby, if the seller stays on after the termination date, the rent will be increased significantly -- perhaps as high as two times the agreed-upon amount. This is not a penalty, but an effort to ensure that you will be able to have the house vacant as per the original agreement.
Finally, the postoccupancy agreement should contain language permitting you to inspect the property immediately after the sellers have vacated it so that you can determine whether there is any damage.
It is crucial to sign a legal document titled "Post Occupancy Agreement" at the settlement table. Otherwise, you might subject yourself to uncertainty and even some potential damage to your new house.