Staying After Selling: What to Know About Use and Occupancy
A use and occupancy agreement can allow a seller to remain in the home for a certain amount of time after closing (also known as a “rent-back” arrangement).
You got an offer for your house, in the amount you were hoping for — but there’s a slight problem: You haven’t found your next residence just yet. As excited as you are about the prospect of a successful sale, you’re hesitant to sign a contract without knowing you’ll have somewhere to go. What are your options, other than letting a serious buyer slip away?
Enter the use and occupancy agreement. Often referred to as the “U&O,” this is a fairly common agreement between a buyer and seller, where one of them is permitted to occupy the property for a specified period of time. In some cases, the buyer is the one who requests the U&O, so they can move into the home while still waiting for a mortgage to be finalized and before ownership is legally transferred.
On the flip side, the U&O can allow the seller to remain in the home for a certain amount of time after closing (also known as a “rent-back” agreement). In markets where inventory is limited, sellers are more likely to request U&O agreements because it’s tougher to find their next property.
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Marc Lagrois, a top Michigan real estate agent, says occupancy after closing is a very common occurrence. “It doesn’t diminish the allure of property, as long as it’s a reasonable timeframe,” he says.
How does a U&O differ from a lease?
While a use and occupancy agreement might seem a lot like a lease, there are some fundamental differences.
With a lease, the tenant has certain basic rights, such as the right to not have their privacy infringed upon, and to not be charged a deposit above a certain amount, among others. With a U&O, the seller inhabiting the home is not contractually granted those standard rights.
Lagrois compares the U&O to an Airbnb rental, in that there is no formal tenant/landlord relationship. “It’s just a very limited contract that grants the seller the ability to remain for a fixed period at a fixed rate,” he explains.
According to real estate attorney David Reischer, a U&O also makes it easier to evict and remove a person from a property if something goes wrong compared to a lease. “A U&O should always specify that the agreement creates a mere license to occupy the premises, and is not a tenancy,” he says.
Another key difference between a U&O and a lease is in their duration. “A U&O is only for a short period of time and is only out of necessity,” explains Shea Adair, a real estate agent and investor in Raleigh, North Carolina. “A lease is purposeful, where someone wants to use and occupy a structure for a longer period of time and therefore needs to be in agreement with it.”
