By James C. “Beau” Brincefield
If you agree to rent back a home to the seller after settlement, there are several important things that you should do to be properly protected. Most importantly, you and the seller should negotiate and sign a written occupancy agreement that states the rights and duties of the parties after settlement.
Next, make sure that you have the proper type of hazard and liability insurance coverage for the property during the rent back period. The typical homeowner’s Policy will not cover the risks associated with a rental property.
A properly drafted rent back agreement should state the amount of any security deposit, the amount of rent to be paid, when it is to be paid and the duration of the rent back period. Obviously, the greater the security deposit, the safer the arrangement will be for the home buyer/landlord.
A rent back agreement usually will require the seller/tenant to pay all utilities and to maintain the property, including all equipment, fixtures, appliances, etc., in good order, excepting only ordinary wear and tear. The agreement also should contain a provision for an inspection of the premises at the end of the rent back period.
One of the most important provisions in any rent back agreement is the one dealing with default or noncompliance by the seller/tenant. You will want the agreement to provide that, if there is a default by the seller/tenant, the per diem occupancy charge will double or triple, and the seller/tenant will be obligated to pay any legal fees and other reasonable expenses incurred by you in enforcing the agreement.
Such additional expenses including such things as the additional cost of temporary accommodations, storage expenses for furniture and additional moving costs – can be substantial.
Reprinted from The Washington Times, 1997.