Granting Possession Prior: The good, the bad and the ugly


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In recent years we have seen an increase in the number of requests from buyers for possession of a property prior to settlement. If everything goes to plan, this is a harmless option for the seller and a great opportunity for the buyer.

What is Prior Possession?

Prior Possession refers to a person occupying and holding physical control over a property before they officially become the legal owner. It occurs when a buyer or tenant gains access to and starts using the property before the sale or lease contract is completed. Prior possession can happen through various arrangements, such as early possession agreements, interim occupancy, or rent-back agreements. It allows the occupant to temporarily use and enjoy the property while the legal and financial parts of the transaction are completed. Prior possession can offer certain benefits, such as comfort and the ability to prepare or customize the property in advance. Still, it also comes with possible risks and concerns that need to be carefully evaluated by all parties involved.

Advantages of Early Possession

Early possession can bring forth a range of significant advantages in property transactions, benefiting both buyers and sellers alike.

  • Convenience and Flexibility: One of the significant advantages of early possession is the convenience and flexibility it offers to both buyers and sellers. For buyers, it allows them to have a smoother transition between properties by providing immediate access to the new property before the official settlement. This eliminates the need for temporary accommodation or storage and reduces the hassle of coordinating moving schedules.
  • Property Customization and Preparation: Early possession grants buyers the opportunity to customize and prepare the property according to their preferences before the settlement. This could involve tasks such as painting, renovations, or furnishing the property according to their specific needs. By having early access, buyers can save time and effort in completing these tasks after the settlement, allowing them to settle into their new home more quickly and comfortably.
  • Time Savings: Early possession can save considerable time for both buyers and sellers. Buyers can avoid the potential delays associated with waiting for the settlement process to be completed before moving into the property. This is particularly beneficial when there are time constraints or other factors that require immediate occupancy. Sellers, on the other hand, can benefit from a smoother transition by having the buyer occupy the property early, reducing the time gap between selling their current property and moving to a new one.
  • Property Inspection and Issue Resolution: Early possession provides buyers with the opportunity to thoroughly inspect the property and identify any issues or defects that may need attention.

Disadvantages of Early Possession

Careful consideration and professional advice are crucial to address the potential disadvantages of early possession and ensure a smooth property transaction process.

  • Financial and legal risks: Early possession can expose buyers to potential liabilities and challenges in recovering funds if the transaction falls through or encounters complications.
  • Delayed settlement: Early possession may result in delays if unresolved issues or disputes arise during the early possession period.
  • Property condition and responsibility: Buyers may discover undisclosed issues or defects, leading to disagreements and disputes over repairs and maintenance responsibilities.
  • Insurance coverage: Adequate insurance policies must be in place to protect both parties during the early possession period.
  • Disruptions and inconvenience: Early possession can cause challenges for sellers who still need time to vacate the property and complete their own transition.
  • Lack of legal protection: Without a comprehensive agreement, resolving disputes during the early possession period may be difficult due to limited legal protection.

A Case Study

Where multiple subject sales have caused a settlement log jam or where there is a delay with mortgage discharge allowing possession prior to settlement is a handy circuit breaker. However, there are a number of risks for sellers who grant prior possession and associated obligations for the buyers who seek it.

This is clearly illustrated by a case where the sale of the property went horribly wrong for one unsuspecting seller after a failed settlement caused a legal dispute and cost him thousands of dollars in legal fees.

In this instance, the seller, Mr. Bayliss, (not his real name) accepted a cash offer that the buyer be granted immediate possession at an agreed weekly rent.

All seemed to be progressing well until, a month prior to settlement, the buyer experienced a significant downturn in his business. It soon became apparent that he would be unable to settle!

In the meantime, the seller had purchased another property via a cash offer to coincide with the upcoming settlement.

Unable to secure finance for the purchase, the buyer failed to settle. The buyer attempted to extend settlement to get alternative finance in place and was upset when hit with the associated penalties. Subsequently the buyer tried to pull out of the contract and the matter ended up in the hands of lawyers.

Ultimately, the seller was stuck with the property and, even worse still, the situation ended up costing him thousands of dollars in legal fees and negatively impacted upon the cash offer he had on the other property.

What we can take away from this story and, others like it, is that all parties should be made aware of the risks involved and the obligations associated with possession prior to settlement, such as:

1. The seller exposes themselves to the risk of the buyer not settling and the property being damaged.

2. The buyer takes on the risk of the property i.e. they accept the property as-is and can make no further claims. They must adequately insure.

3. The buyer is obligated to pay the full amount of the duty, even if the sale fell through due to no fault of the buyer.

As you can appreciate there are a number of ways for agents to approach this issue and the key here is to keep everyone informed. So how will you handle requests for possession prior in the future?

Image by Linus Bohman via Flikr.

Peter Fletcher

Meet Peter Fletcher, a real estate expert with over 30 years of experience. As the Managing Director at Rezzi, Peter is a licensed settlement agent and real estate agent. His knowledge and expertise have been recognized in the industry, serving as a councillor and trainer for REIWA and AICWA. With Peter on your side, expect expert guidance and unwavering support throughout your property journey.