Early Possession of a Home Pending Closing

Many of you have worked with homebuyers who want to move into their new home before closing takes place, arranging this for the buyers is not very time consuming or complex.  Many brokerages have a standard form Early Occupancy Agreement that sets a daily rent amount and covers related issues.

This early occupancy arrangement becomes considerably more challenging when the buyer wants the right to make repairs or improvements prior to closing.  Beware!  What may seem a simple modification of the Purchase and Sale Agreement or the Early Occupancy Agreement, is not nearly so simple.

The big question often becomes, “What happens if the sale fails to close?”  The buyers are not happy because they have sunk thousands of dollars into a home they cannot buy.  The seller is unhappy because the buyers now want to be paid for the improvements they have made.  Because the sale has not occurred, the seller does not have the money to do this.  Tempers fray, and a lawsuit begin.

Take for example, the case of Bar K Land Co. v. Webb, 72 Wn. App 380 (1993).  In this case, Ms. Webb wanted to buy a house in Spokane.  In March of 1990, she signed a Purchase and Sale Agreement for the house.  She also signed an Early Occupancy Agreement.  This set rent at $16.67 per day.  So far, so good.  The Purchase and Sale Agreement, however, allocated a portion of the purchase price to remodeling expenses.

Ms. Webb spent far more on remodeling than the agreement called for.  The closing date arrived, but the sale did not close.  Instead, Ms. Webb stopped paying the rent, but kept on paying remodeling expenses.  She kept on remodeling until November, 1990.  The seller then started an unlawful detainer action against her.  The trial court evicted her, and awarded the seller damages (which included back rent).

The Court of Appeals reversed the case.  It ruled that following the regular eviction procedures under the Residential Landlord Tenant Act was not appropriate on these facts.  The requirement that Ms. Webb pay for substantial improvements to the property made her a purchaser rather than a tenant.  Consequently, the proper way to proceed was for the seller to file an ejectment action.  In an ejectment action, the seller can sue for damages for the buyer’s withholding of the property, and the buyer can claim the value of improvements they made to the property.

This is important for several reasons.  First, your sellers should be aware that the special, shortened time frames for a residential eviction do not apply here.  Instead, the sellers will find themselves in an ejectment action, which follows ordinary civil case timelines.  In practical terms, it means waiting a year or longer for an ejectment trial, instead of 30 days for an unlawful detainer.

Your buyers should be aware that there is no speedy way to collect the amount of their improvements.  In the event of a dispute, they may wait for a year or longer to recover the cost of their remodeling expenses.  And, because the Residential Landlord-Tenant Act may not apply, some of the protections provided to tenants will not be available to the buyers.

The moral of this story is, be careful.  When your buyer or seller asks you about Early Occupancy Agreements, be sure to ask if substantial improvements or repairs are to be made.  If so, strongly urge your clients to seek the advice of an attorney.  This will enable the client to go into the transaction with “eyes open.”  It also lessens the possibility your client will sue you if things go badly.

Published March 1997

This article contains information of general interest, and is not intended to be, nor should it be relied upon as a substitute for specific legal advice.