This hot real estate market has made it difficult for many sellers to find suitable housing before closing on their current home. Because of this, there has been an increase in Use and Occupancy (or U&O) agreements. These agreements allow one party to occupy the property before or after the sale. Find out how you might be able to use a U&O to win a bid, or hold a deal together!
What is a Use and Occupancy agreement?
A U&O agreement (also known as a "rent-back" agreement) is created between a buyer and seller, where one of them is permitted to occupy the property for a set period. That means either the buyer is allowed to move in before the settlement, or the seller is able to temporarily remain in the home after closing.
As you can imagine, this has recently gained popularity because it allows sellers more time to find their next home.
Is a U&O Agreement similar to a Lease?
Although U&Os may sound similar to a regular lease agreement, they are definitely not the same. There are some fundamental differences between a U&O and a lease.
For starters, there is no formal tenant/landlord relationship. U&Os operate under a very limited contract, that grants one party the ability to live in the property for a fixed period at a fixed rate.
Another key difference between a U&O and a standard lease are the occupant's rights. A typical lease agreement provides the tenant with basic tenant rights, like the right to privacy, deposit amount restrictions, etc. Because a U&O does not see the occupant as a tenant, basic tenant rights are not required. These terms make it easier to evict a person from a property if something goes wrong.
Terms of a Typical U&O
Period: The agreement should include a very specific timeframe for occupancy.
Amount of Payment: The agreement should be specific on how much the occupying party will pay. A daily rate that covers principal, interest, taxes and insurance is usual.
*Pro-Tip* Some buyers agree to grant occupancy at a reduced rate, or no cost, to make their offer more attractive in a strong seller’s market.
Failure to Vacate: The agreement should describe the penalty if the occupant does not vacate the property by the termination date.
Use Limitations: This provision keeps the occupant from making any changes to the property during their use, such as painting, installing flooring, or changing fixtures. It also prohibits them from causing any undue waste, or making any structural alterations.
How to Create a Use and Occupancy Agreement
A Use and Occupancy agreement is a legal document and is typically prepared by a real estate attorney. However if you service an area that does not use attorneys, you may be required to draft a U&O on your own. In that case, there are tons of templates you can find online. The most important thing to remember is that language is everything in the agreement. You need to be as specific as possible when spelling out your terms and expectations.
If you need help drafting a U&O agreement, our team may be able to help! Contact us today if you have any questions.
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