Timing for Entering into a Seller-in-Possession Agreement

October 21st, 2019 at 11:02 am

Question: We are the listing agent at the counter offer stage, and our sellers need to remain in possession of the property after close of escrow. The sellers are not sure about certain details concerning their leaseback. Can they just enter into a sales contract for now, and do the seller-in-possession addendum during escrow? 

Answer: Yes, but that is not a good idea. As a little background, C.A.R. has 2 standard-form seller-in-possession agreements: (1) the Seller License to Remain in Possession Addendum (SIP), which actually creates a license to remain, not a leaseback, for short terms of stay; and (2) the Residential Lease After Sale (RLAS), that C.A.R. recommends for possession for 30 days or more.

The best time for sellers and buyers to enter into an SIP or RLAS is at the same time that they enter into a sales contract. Doing the SIP or RLAS upfront helps to ensure a smooth transaction, and protects the parties from having disagreements later on about things such as length of stay; security deposit; delivery of possession fee; property insurance; and other potential concerns.

When a seller is in a multiple offer situation, it is relatively simple for the listing agent to add an SIP or RLAS to the counter offer, and get the buyer to accept those terms. Occasionally, a seller may not know, at the time of contract, certain details such as how many days they want to lease back. But that’s generally not a good enough reason not to enter into an SIP/RLAS upfront. Perhaps the seller can, for example, just request the maximum number of days that the seller anticipates needing as a leaseback, and reserve the right to reduce the number of days as needed.

Sometimes, however, there are a lot of other moving parts when negotiating a sale. If, despite your best efforts, you cannot get the parties to enter into an SIP or RLAS upfront with the sales contract, be sure to confirm with your own client in writing that you recommended entering into the SIP or RLAS upfront. That written confirmation should protect you from liability in the event that issues later arise concerning the leaseback.

-Thank you to the David Offer Team (Brentwood Office) for suggesting this week’s legal tip.

Copyright© 2019 Berkshire Hathaway HomeServices California Properties (BHHSCP). All rights reserved. Any unauthorized reproduction or use of this material is strictly prohibited. This information is believed to be accurate as of October 21, 2019. It is not intended as a substitute for legal advice in individual situations, and is not intended to nor does it create a standard of care for real estate professionals.

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