Broker Practice Advisory: Review of Post-Closing Occupancy Agreements

Effective January 1, 2021, the Colorado Real Estate Commission approved an updated Post-Closing Occupancy Agreement form for use by Colorado licensees.

While spring weather may result in added housing inventory on the market in Colorado, the higher interest rates and other factors may still require buyers and sellers to enter into an arrangement to rent-back a property to the sellers while they are making arrangements to move, execute a longer-term lease, or close on a new property. Whatever the circumstances may be, a Post-Closing Occupancy Agreement is an important tool in every licensee’s toolbox, should the need arise.

A Post-Closing Occupancy Agreement (the “Form”) is available for use for up to sixty (60) days following closing. There are a variety of reasons for this, but the primary reason is that lenders may interpret a term longer than 60 days to indicate that the property is not owner-occupied and, might constitute a breach of any lending agreements or deeds of trust. Licensees should know that if seller possession will last longer than sixty (60) days, a document should be prepared by an attorney licensed to practice law in the State of Colorado.

Essentially, the Form clarifies the responsibilities of the buyer (the temporary landlord) and the seller (the temporary tenant). Accordingly, it addresses a variety of topics: maintenance, damage taking place after closing, access to the property by the buyer, and the amount of rent, to identify a few.

Recently, the Division has received several questions about the Form and how the parties should address both security deposits and rent payable to the buyer, particularly considering recent legislative changes. Those licensees who have already taken the 2024 Annual Commission Update are aware of the numerous changes to landlord/tenant law in Colorado. Compliance with these changes is required in the event of a post-closing occupancy arrangement.

The Form sets forth which party is responsible for maintenance in Paragraph 4. The buyer is responsible for “the heating and cooling systems, including ventilation and ducts, plumbing, electrical wiring, roof and structural components of the Property and all appliances in the Property owned by Buyer and the lawn sprinkler system”. The seller is responsible for maintaining other items previously maintained by the seller including landscaping, snow removal and lawn care.

In a post-occupancy agreement, rent is payable to the buyer in advance and the total rent amount shall be identified in Paragraph 8 of the Form. For a variety of legal reasons, the rent amount should be greater than zero dollars. Whether the parties agree to prorate rent in the event that the seller vacates the property before the end of the term is subject to negotiation between the parties and the parties’ decision should be reflected by checking the appropriate box in Paragraph 8.

Licensees familiar with landlord/tenant issues will be familiar with the term holdover tenant. A holdover tenant is a tenant that does not vacate the premises by the end of the term. This same situation can occur in post-closing occupancy agreements. Therefore, Paragraph 10 of the Form clarifies that a holdover tenant/seller can be subject to eviction and liable to the buyer for a per diem charge until possession of the property is delivered to the buyer.

Both Paragraphs 11 and 12 require the parties to agree about which party is responsible for utilities like water, sewer, gas, and electric. Licensees should discuss with their consumers the possible risks related to utilities and should advise them to arrange for timely meter readings, payment, and transfer of utilities between the parties in accordance with their agreement.

Importantly, Paragraph 15 of the Form identifies that a security deposit is also required. To protect the interests of the buyer, the security deposit should be a reasonable amount of money to protect their interests from both intentional and unintentional damage by the seller. Ideally, deductions from the security deposit are not needed, but in any case, the buyer is required to disburse the balance of the security deposit within thirty (30) days after the end of the occupancy term.

These agreements can be negotiated between the buyers and sellers at any time before closing, but it is important to think about the myriad of moving parts in a closing. As the parties move closer to closing, the willingness for the buyer to extend seller’s possession may wane. Therefore, if you are representing the buyer, discuss the possibility with your buyer early and often.

Colorado Division of Real Estate

How to Handle Scammers, Squatters and Trespassers

In a competitive real estate market, be on the lookout for scammers posing as property owners with a false listing.

Agents should beware of common red flags when they suspect fake documentation and counterfeit deeds.  

“A big red flag is if the ‘client’ is almost too easy to work for,” said Virginia REALTORS® General Counsel Laura Murray, speaking at a risk management session during the REALTORS® Legislative Meetings(link is external) in Washington, D.C. “If something seems weird, trust your gut.” She added that sellers whose behavior seems out of the ordinary, such as being too demanding and claiming they need the money from the sale right away, are potential scammers.

Scammers typically seek out properties with no mortgage, Murray said. They might have an ID that doesn’t match the state of the listing, or they may request to use a remote or out-of-state notary or settlement company from a third location. “Most people want to have [a service] be convenient to them, and they're going to go to somebody that's close by,” she said. “So, if they're wanting to use a remote notary in another state or country, that’s another thing that should raise a red flag for you.”

How can agents and brokers help combat against fake real estate listing schemes? Murray offers the following tips for members:

• Always rely on government records, such as tax forms, to verify property ownership.

• Require identity verification before listing the property. Use websites and apps that can help verify IDs. “It’s not impossible [for scammers] to file fake documents with the locality,” Murray said. But scams can be detected early using current technology.

• Encourage clients to set up a Google alert so they get early warnings if their address gets added to a syndicated real estate website.

• Have a conversation with the property owner whose home has suddenly popped up as For Sale with unclear representation, and warn them of the listing. This can build good faith and lead to a future relationship whenever the true owner wishes to sell.

• Before completing a transaction, put something in the mail that goes to the address listed on the tax records of the actual deed holder; the scammer will not receive it at their listed address.

• Be careful not to inadvertently violate fair housing rights. Avoid implicit bias against sellers from certain demographics or countries of origin.

• If something seems suspicious, contact local law enforcement or the FBI.

• File a complaint with the Internet Crime Complaint Center(link is external).

• Contact your broker and insurance company to get yourself covered and make a plan.

• Document everything you have done to verify the person’s identity.

• Create a standard protocol document at your brokerage for validating sellers.

Understanding Property Possession Risks

Agents should also become educated on the legal implications of adverse property possessions by squatters and trespassers, as well as the differences between the two, said Maria Flaks, senior director of legal affairs for the Northern Virginia Association of REALTORS®.

For example, to be classified as a squatter in the state of Virginia, the individual must stay on the property without the owner’s permission in order to comply with the “Hostile Claim” rule. They must demonstrate having no legal rights, no title, no liens and no other regional property agreement in place. And they must have had continuous and uninterrupted access to the property for a certain length of time. In Washington, D.C., and Virginia, for example, that amount of time is 15 years. But the quantity can range from five to 30 years, depending on state laws. In some cases, the individual may have even paid property taxes.

The “Actual Possession” claim applies to squatters who actively make improvements to the property. “It has to be obvious the squatter is living there,” Flaks said. “They need to treat the property as the owner would.”

While a squatter is claiming ownership rights, a trespasser does not claim to live on the property and is typically a transient. A squatter might build something on the land or change something tangible on the property, but a trespasser typically would not alter the property and has no pathway to acquiring legal rights.

A property owner’s biggest risk is failing to do a property inspection for years, not realizing someone has taken possession. This could result in losing the property title to the individual who has taken over use of the property and/or land. “It does happen. It’s important to avoid this because going to court can be time-consuming and expensive,” Flaks said.

Florida, Georgia, New York, South Carolina and Virginia recently passed laws that can speed up the process for resolving squatters’ rights cases.

“The number one thing you can do to avoid issues is to take prompt action,” Flaks said. Immediately alert local law enforcement to any issues, and don’t try to force the individual(s) to leave. To keep squatters from taking over the property, make it look occupied by running a sprinkler system or having motion lights and security cameras installed. And, of course, make sure all doors are locked and land access is closed off.

If you have state-specific questions, contact local authorities and seek legal representation, Flaks said.

NAR Realtor Magazine

West + Main Homes Founder + CEO Named on the SP200 Top Most Influential People in Real Estate List

We are so proud to see Stacie Perrault Staub make her debut on T360’s SP200 list!

“Staub leads West + Main Homes, which has approximately 420 agents who do approximately $1.4 billion in annual sales. The firm, which she co-founded in 2017, has offices in Colorado, Oklahoma, Oregon, Minnesota, and North Carolina,” said the T3 executive panel.

“T3 determines the rankings by each leader’s power within the industry — how much capital could they access or leverage themselves, their ownership stake, if any, in the companies they lead, the size and importance of the companies they lead, their place in their company’s org chart, their personal influence within the industry, the size and production of the companies they lead. All of these factors are considered when ranking leaders, and, as such, the exercise requires a ton of analysis and, unavoidably, some subjectivity.”

Learn more about the SP200 here.