Form-of-the-Week: Occupancy Agreements — Interim and Holdover — Forms 271 and 272

Occupancy agreements

The 2020-2021 surge in home prices boosted California homeowners’ home equity levels. Before prices are fully dragged down from their May 2022 peak by the encore of the 2020 recession, owners may take advantage of this fleeting equity boost by selling their primary residence and buying replacement property.

However, it’s not always possible to smoothly transition from the old residence to the new one. In this volatile environment where prices are looking for a bottom, it’s a greater challenge to time the current home’s closing with the purchase of a replacement home.

This logistical challenge has a solution: occupancy agreements.

An occupancy agreement creates a rental agreement for the buyer or seller to occupy the property as tenants until their replacement residence is secured. [See RPI Form 271 and Form 272]

A buyer’s agent uses the Interim Occupancy Agreement when the buyer seeks occupancy of the property before closing escrow. [See RPI Form 271]

A seller’s agent uses the Holdover Occupancy Agreement when the seller seeks to temporarily remain in possession of the property after the sales escrow closes. [See RPI Form 272]

Occupancy agreements are best attached to the purchase agreement as an addendum. They may also be agreed to prior to closing escrow or in a counteroffer. The agreement clarifies the buyer or seller’s ownership rights and, more importantly, creates a landlord-tenant relationship for quick resolution of any disputes over occupancy in the event of a default.

Related video:

The interim occupancy agreement

Under an interim occupancy agreement, arrangements are made for the buyer to prematurely take possession of the replacement property prior to closing the purchase escrow on the replacement home. [See RPI Form 271]

To create the tenancy:

the seller, as a landlord, agrees to lease the premises for a certain term; and
the buyer, as a tenant, agrees to pay rent for the use of the premises.

The occupancy agreement provides for the rental period to be set as a determinable “fixed” time period. It will expire on the earlier of the close of escrow or on termination of the underlying agreement. [See RPI Form 271 §3]

A fixed-term tenancy terminates automatically without need of prior notice from the seller/landlord. [Camp v. Matich (1948) 87 CA2d 660]

In addition, the amount of rent and time of payment is stated. [See RPI Form 271 §5]

A special provision is included in the occupancy agreement for payment of rent when the buyer does not vacate upon the expiration of the tenancy. The amount is sharply increased and made payable at a daily rate to discourage the buyer from remaining in the premises beyond the agreed-to term of occupancy. [See RPI Form 271 §5.7]

Further, the security deposit is to be refunded to the buyer on the close of escrow. On cancellation of the purchase agreement, the tenancy terminates and the security deposit is to be returned within 21 days of the buyer vacating, less amounts necessary to remedy any default in rent or to clean or repair the premises. [See RPI Form 271 §6]

Related article:

May a landlord withhold their cost of repairs from a security deposit when the tenant vacates and the occupancy agreement does not authorize use of the security deposit to cover repairs?

The holdover occupancy agreement

Under a holdover occupancy agreement, arrangements are made for the seller to retain possession of the residence after the sales escrow closes. [See RPI Form 272]

Such an arrangement allows for the seller to assume the role of tenant and the buyer to assume the role of landlord. The seller/tenant agrees to pay for the use of the property in exchange for the buyer/landlord to lease the newly bought property for a specific term.

The occupancy agreement provides for the rental period to terminate on a specified “fixed” time period. [See RPI Form 272 §2.1]

The agreement also specifies the:

amount of rent;
time of payment; and
method of payment. [See RPI Form 272 §3]

When the seller continues to occupy the premises after termination of the tenancy, the seller/tenant is to pay a day-to-day tenancy of a specified rental rate to discourage the seller from remaining as a holdover tenant beyond the agreed-to term. [See RPI Form 272 §3.7]

The security deposit and the first month’s rent (or all months’ rent) are best disbursed by escrow from the seller’s proceeds at the close of escrow. Supplemental escrow instructions are to be prepared instructing escrow to pay the buyer the rent and security deposit due. [See RPI Form 401]

Related article:

The holdover occupancy agreement – a seller’s lease-back after close of escrow

Analyzing the interim agreement

A buyer’s agent uses the Interim Occupancy Agreement — Receipt for Rent and Security Deposit published by Realty Publications, Inc. (RPI) when the buyer seeks occupancy of the property prior to the close of escrow to purchase the property. The agreement allows the agent to prepare a rental agreement for buyer occupancy with conditions protecting the seller when the buyer defaults. [See RPI Form 271]

The Interim Occupancy Agreement contains:

Facts, such as:
- the referenced agreement (Purchase agreement, Counteroffer, Escrow);
- the date;
- the buyer’s/tenant’s identity;
- the seller’s/landlord’s identity; and
- the address [See RPI Form 271 §1];
Agreements, including:
- the buyer has a right to possession and occupancy [See RPI Form 271 §2];
- the date the occupancy commences and when it expires [See RPI Form 271 §3];
- cancellation agreements, including when the seller may terminate the agreement [See RPI Form 271 §4];
Rent information, including:
- the amount of rent and security deposit the seller is to receive [See RPI Form 271 §5];
- the time and method of payment [See RPI Form 271 §§5.1 through 5.5];
- the rent will be prorated to the date the tenancy is terminated [See RPI Form 271 §5.6]; and
- the amount the buyer/tenant will pay per day when they holdover [See RPI Form 271 §5.7];
Security deposit information [See RPI Form 271 §6];
Property conditions, detailing that the property is in satisfactory condition and will remain that way during the buyer’s tenancy [See RPI Form 271 §7; see RPI Form 560];
the buyer is to timely pay utilities incurred during their occupancy [See RPI Form 271 §8];
a hold harmless provision [See RPI Form 271 §9];
the seller/landlord’s right to enter the property in case of an emergency or for necessary repairs [See RPI Form 271 §10];
the buyer is not to assign their rights or sublet any portion of the premises [See RPI Form 271 §11];
an attorney fees provision [See RPI Form 271 §12];
additional terms to be attached in an addendum [See RPI Form 271 §13; See RPI Form 250]; and
Signatures of the buyer/tenant and seller/landlord. [See RPI Form 271]

Related article:

Form 271 – Interim Occupancy Agreement

Analyzing the holdover occupancy agreement

A seller’s agent uses the Holdover Occupancy Agreement published by RPI when the seller seeks to temporarily remain in possession of the property after the sales escrow closes. The agreement allows the agent to prepare a rental agreement for the seller’s continued occupancy with conditions protecting the buyer when the seller defaults. [See RPI Form 272]

The Holdover Occupancy Agreement sets forth:

Facts, such as the:
- referenced agreement (Purchase agreement, Escrow, Counteroffer);
- date;
- buyer’s/landlord’s identity;
- seller’s/tenant’s identity; and
- address [See RPI Form 272 §1];
Agreements, including when the occupancy terminates [See RPI Form 272 §2];
Rent information, including the:
- amount of the rent and security deposit to be handed to the buyer/landlord on close of escrow from the seller’s/tenant’s funds [See RPI Form 272 §3];
- time and method of payment [See RPI Form 272 §§3.1 through 3.5];
- rent will be prorated to the date the tenancy is terminated [See RPI Form 272 §3.6];
- amount the seller/tenant will pay per day when they holdover [See RPI Form 272 §3.7];
Security deposit information [See RPI Form 272 §4];
the seller is to timely pay utilities incurred during their occupancy [See RPI Form 272 §5];
the seller will keep the premises in good condition [See RPI Form 272 §6];
a hold harmless provision [See RPI Form 272 §7];
the buyer’s/landlord’s right to enter the property in case of an emergency or for necessary repairs [See RPI Form 272 §8];
the buyer/landlord may terminate the agreement when the premises are destroyed or damaged by the seller/tenant [See RPI Form 272 §9];
the seller/tenant may not assign or sublet any portion of the premises [See RPI Form 272 §10];
an attorney fees provision [See RPI Form 272 §11]; and
Signatures of the seller/tenant and buyer/landlord. [See RPI Form 272]