Decoding Post Possession Agreements In Arizona: The Ultimate Primer

What is a Post Possession Agreement?

What is a post possession agreement? Well, the name of this type of contract is a bit of a misnomer or perhaps a carry over from English law jurisdictions. A post possession agreement is a contract between a seller and buyer that is entered into before escrow closes but is intended to give possession of the property after closing. While it is typically used by an owner who needs additional time to move out of the property or closes on the sale of their home a few weeks before a new home closes, they don’t fit neatly into one category.
Other uses for a post possession agreement also include those used with short sales. The IRS requires the seller’s home to be sold in advance of a foreclosure sale as a condition of the seller obtaining a short sale from their mortgage lender. This can take some time if the sale is complicated. Because of this requirement, sellers often enter into a post possession agreement with the buyer of their home to buy themselves time to make the sale before their home is foreclosed upon.
Some post possession agreements are used to enable the buyer to take early possession of the property before closing of escrow. These are referred to by Arizona real estate agents as "refer, ref" which stands for "residential purchase contract, seller referral, seller stays or "BCR, BCR". These are reserved for those situations where the buyer is using the property as a principal residence. They cannot be used where the buyer plans to house an investment property.
Other common uses for a post possession agreement include situations that don’t fall into the preceding examples. Such uses include those such where the seller has a tenant who is well into their lease term at the time of receipt of the offer . Reducing the rent to a point that it attracts little if any interest is often not appealing for the owner. Or the deal may have closed months before the seller planned a vacation and the buyer is willing to allow the owner to stay.
The post possession agreement has gained popularity in the past few years. Post possession agreements have long been used in Arizona, but the duration of time that they now cover has extended. Ten years ago, the duration was in the range of 30-60 days. Now, more often than not, the duration of post possession agreements are just under 6 months.
This has generated some criticism of such long post possession agreements and even been characterized as "a trap for the unwary" because some Arizona residential contracts, including the new Arizona general tenancy agreement addendum, require that tenants be given 60 days’ notice to terminate a tenancy. (Note, I don’t agree with that characterization at all. The cause of the long post possession agreements is a desire to yield the highest price possible when an owner sells their home, so the agent takes the listing at the very first moment and markets it as a short sale.)
Nobody likes a dissatisfied client and that includes me. So, as an experienced Arizona real estate lawyer, I want to help keep parties out of trouble. If you are considering using a post possession agreement, get legal advice. I have more opinions than Jay Leno, so what I say here isn’t gospel.
If you do sign a post possession agreement, it is important that you have confidence that it is enforceable because as a contract is the basis for a landlord-tenant relationship. Both parties have rights and obligations and strong enforcement mechanisms to protect them. A misstep can be undoubtedly costly.

The Significance of a Post Possession Agreement in Arizona

Post possession agreements are quite popular in Arizona, despite the fact that not all contracts allow for post possession. There might be a need to change a closing date shortly prior to the actual close of escrow, and so the buyer is given possession. And then the parties agree that in order to let the buyer stay in possession after the new closing date, the buyer will pay additional sums of money per day for the right to remain in possession.
When the buyer takes possession without these provisions, it is considered in "illegal detainer" and the seller would have the right to sue the buyer for an eviction. Keeping money flowing to the seller in the form of rent payments is something that both parties want to avoid.
Post possession agreements are typically disfavored because they are ultimately considered an eviction of the seller from the property and require the seller to be comfortable with the fact they still own the home, but that they no longer control it. This is particularly difficult when a seller suffers from distress of any kind (death, divorce, illness, disability) that necessitated the sale in the first place. A person who is grieving a loss may not have the emotional fortitude to deal with a post possession agreement (let alone an eviction). I always recommend that my clients do the best they can to make that happen, since it is generally much better than requiring an eviction to go into effect.

Essential Components of a Post Possession Agreement

In general, a post-possessed premise agreement should expressly state that the agreement is in no way amending (or is in addition to) the terms of the underlying lease agreement. Typically, post possession agreements will address (1) the term of the extension; (2) occupancy during the extension; (3) rent payments and interest; (4) liability on the premises; and (5) insurance to protect each party. With respect to the term of the extension, a post possession agreement will usually be limited to a set number of days with the possibility of another extension upon agreement of the parties. Tenant should also be required to make rent payments and interest, if any, during the period of Attorney’s Exclusive Right of Possession, or possession of the property by the landlord. If Tenant is allowed to stay in possession of the property during the post possession period, rent should be equally apportioned between Attorneys and tenant. Both parties should be disagree it is the same space, regardless of whether their respective interests in the space have been rejected by the Court pursuant to the confirmation order. The post possession agreement should also impose liability on tenant for any damage, loss or other adverse event that may occur on the property during the post possession period. It is also very common to include insurance obligations in a post possession agreement to further protect both parties’ respective interests and risk exposure. The insurance requirement should set the amount and type of policy and coverage limits that are acceptable to the attorneys and landlord entities; however, these criteria should be in line with the underlying lease requirements so as to not alert landlord of a Lease Event of Default as a result of an insurance deficiency.

Legal Aspects Unique to Arizona

Post possession agreements (also referred to as post possession addenda) must comply with Arizona law. First, since many real estate transactions in the State of Arizona are consummated pursuant to the terms of the Arizona Association of Realtors purchase contract, a post possession agreement that is drafted on an Arizona Association of Realtors post possession addendum form is presumed to conform with Arizona law and should provide sufficient legal protection for the parties in the majority of transactions. However, post possession addenda are often not utilized by the parties in less than perfectly executed transactions. In these instances, the parties need to be aware that Arizona law may favor the party in possession of the property if the terms of the post possession agreement do not clearly state the rights, duties and obligations of the parties. The Arizona Court of Appeals has held that when an ambiguous contract favoring the drafter is construed against the drafter, in a post possession agreement, the understanding of the broker who drafted the agreement and sold the property as to the intent of the parties may be informative in construing the terms of the ambiguous agreement.

Common Challenges and Solutions

Both parties may discover a previously unknown or concealed issue days, weeks, or months after closing. The first party to make a claim on the Seller’s post possession agreement will as a matter of course be met with skepticism and a request for corroborative evidence. For example, Seller may have discovered a water leak under a kitchen sink that was not reported to the Buyer in the 7 days between the close of the sale and the day that Seller moved into its new home. Buyer may have learned of the issue from an upset tenant who sent an email message to the Listing Agent and both Purchasers. The Buyer is correct that the Listing Agent had been made aware of the leak by the Tenant. Unfortunately, neither the Listing Agent nor the listing agent’s Commission Check lists the Tenant as the Party with whom the Listing Agent communicated, or with whom the Listing Agent received the email complaint. Without any corroborating evidence, the Listing Agent’s professional liability insurance company will likely decline to pay any settlement sum in favor of Buyer.
The obvious solution to this dilemma is for the Buyer to call the Tenant and ask for authorization to obtain a copy of the email or a written statement confirming the problem. No such request is possible if the Tenant has vacated since the email complaint was made.
Had the Listing Agent followed the best practice of "cc’ing" the Buyer on all communications , the delay might have been avoided. When the practice of blind copying is used, all of the parties’ emails will have the same date stamp. In the absence of the Tenant’s testimony, and without instructions from the Buyer to the Listing Agent, a dispute over whether the Listing Agent was made aware of the leak or the expense by the Tenant will never be resolved.
Buyers in Arizona have long been required to conduct pre-qualification and pre-approval processes in order to obtain a mortgage with the least amount of fuss and delay. Likewise, a commitment to assist the Lender in a post possession matter should be made with the same forethought.
Because courts have not uniformly or consistently determined whether a breach of a post possession agreement may give rise to a landlord/tenant relationship, the Buyer could lose its good faith deposit in a fall out over a small claim. It would be best to avoid the possibility by stating the various contingencies and expectations in great detail.

How to Prepare Your Own Post Possession Agreement

Drafting a post possession agreement requires an understanding of real estate law and the potential risk you take when entering into the agreement. So while you can draft a post possession agreement on your own, it’s always a good idea to consult a real estate attorney before finalizing the agreement to ensure that all parties’ interests (yours included) are protected. The following information should help you better understand the process for drafting a post possession agreement:

1. Decide if Ending the Lease Early is Necessary

In some cases, it may be possible to end the lease early without the need for a post possession agreement. Landlords should contact the tenant to see if an early lease termination is possible before drafting the post possession agreement. If an early termination is not an option, then drafting a post possession agreement may be the way to go.

2. Fill Out the Required Paperwork

Some landlords will require that tenants fill out a rental property application to ensure that they have handled their responsibilities properly during the tenancy before they’re allowed to stay on the property. This can include providing details about any damages caused, payments due and more.

3. Outline the Terms of the Post Possession Agreement

Post possession agreements can include terms such as: All of these items should be outlined in the agreement. It is also important to identify which party is responsible for paying any fines incurred for violations of city codes.

4. Identify Who Will Be Paying for Damages

If damages need to be repaired after the tenancy has ended, it’s important to identify how they will be repaired and who will pay for the repairs. Some landlords may require that the costs come out of the security deposit.

5. Set a Deadline for All Parties

The most important part of a post possession agreement is that all parties know when the tenancy will officially end. Set a deadline for the end of the tenancy and make sure it’s adhered to on both sides.

6. Reach Mutual Agreement

Unsigned agreements are worthless, so make sure all parties sign your post possession agreement for lease termination—the landlord, the tenant and any real estate agents involved in the transaction.

Examples from the Field in Arizona

While many of these agreements ultimately work out well for everyone involved, there are always exceptions. A 2012 case demonstrates why you cannot simply trust your landlord to abide by post possession agreements without getting the matter in writing.
In this case, a landlord and tenant came to an agreement after the tenant informed the landlord of his need for more time to move out. The landlord agreed that the tenant could remain in the property for an additional six weeks, and they further agreed that the rent would be $2,200 per month during this period. In exchange, the tenant was to get the property back into showing condition, a move that was not really feasible over the course of six weeks.
After the six weeks passed, the tenant had not moved out and was unable to meet the conditions of the lease so that new tenants could see the property. While he was making the effort to get the place back into showing condition and sufficiently clean for a move, the landlord began considering the matter as a breach of the lease. The landlord also raised the question of whether the tenant was really going to move out at all, or if the extra six weeks was just a way for the tenant to remain in the property long enough to find a place with more space and more affordable rent.
When the tenant finally moved out, he paid most of the back rent, but needed additional time to clear his personal items out of the house. The landlord refused and even changed the locks to prevent the tenant from finishing the move. With no recourse, the tenant was forced to leave the items behind. To make matters worse, the landlord had not secured the property, and thieves vandalized the items that were left behind.
The tenant filed suit due to the landlord changing the locks, and the theft that followed, but it was determined that these actions were justified because the tenant had violated the post possession agreement. Because the landlord stuck to the terms of the agreement, the tenant lost his opportunity to seek restitution for the lost items.

Post Possession Agreement FAQ

**FAQs About Post Possession**
How does a Post Possession Agreement fit in with the contract? A Post Possession Agreement is optional and negotiated separately. It allows the Seller to remain on the property for a set amount of time after the close of Escrow, typically to pack up and move. A Post Possession Agreement becomes part of the Contract when it is signed.
Are there any additional costs associated with a Post Possession Agreement? The most common cost to the Buyer is the lost rent of a comparable rental and Utilities that the Buyer will need to pay during the time. The easiest way to handle this the Buyer stays in the house and factors that deduction into the amount of their loan. The other option is that the Seller pays those costs directly.
If the house is in an HOA what are the Seller’s responsibilities? It is important to check the CC&Rs to see if there is any specific language regarding Post Possession. It is also important that the Seller understands they are responsible for maintaining the landscaping and exterior of the house, as well as all of the HOA requirements such as trash cans .
What happens if the Seller can’t move out on time? A Post Possession Agreement can be written to allow a Seller to make up the time. For example, the Seller agrees to pay $300 in addition to the Seller Concessions for each day after they were supposed to move out, for up to 10 days. The Buyer could also have a set amount deducted from the proceeds at Close of Escrow, or they could charge the Seller each day.
What if the Seller does not move out by the date that is agreed upon in the Post Possession? The Buyer or their agent can call a locksmith and change the locks. Even though the Seller has not moved out, once they have had "reasonable notice to vacate" the Buyer has the right to do this since they are technically trespassing. If the Seller does not leave after that they can be charged with Trespassing. If the Seller refuses to leave after being given reasonable notice to vacate they can be charged with a class 3 misdemeanor.
Can the Buyer go inside the property while the Seller is still occupying it? Yes, as long as the Buyer has agreed to it. This can be a clause in the Post Possession Agreement.