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.
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.