Sellers: Should you grant early or prior possession of a property to a buyer (what are the pros and cons)?

Further to our previous blog post – Buyers: Avoid nasty surprises! Why it’s smart to insist on a final inspection before your property settlement, giving tips to buyers on the merits of a final inspection before property settlement, this month’s tip is for sellers who need to decide whether to provide early/prior possession of a property to a buyer. 

What is a prior possession?

An ‘early possession’ or ‘prior possession’ of a property by a buyer is what happens when the buyer gets the keys to the property after the contract is signed but before settlement is finalised (i.e., ‘prior’ to settlement which usually takes 30 to 90 days from the time the contract is signed). This situation is also known as ‘early access’.

Why does this happen?

Likely scenarios for prior possession are:

  • Availability: The property is already vacant, and the seller agrees to let the buyer have access to it before settlement is finalised. 
  • Convenience: The buyer wants to move in as soon as possible because it gives them more time to start making arrangements to move, or complete home improvement projects on their former residence, before they start the next chapter of their lives in their new home.
  • Urgency: If the buyer has already sold and settled their previous home and has no place to live, they may want to move in as quickly as possible.

What are the advantages of early possession?

It depends on whether we are talking about the seller or the buyer.

Advantages to the seller of early possession:

  • Extra income in the form of licence/occupation fees, incurred from the day the buyer occupies the property to the settlement date, and payable in full on settlement date.

Advantages to the buyer of early possession:

  • The convenience of moving in as soon as possible. 
  • The relief of being able to move in as soon as possible in case of an urgent situation where they find themselves without an alternative home (e.g., if their lease has run out on their rental).
  • It could be seen as a positive thing if the buyer can still move into the property despite a delay with the banks involved in the settlement (the seller’s mortgage discharge or the buyer’s new mortgage). 

What are the disadvantages of early possession?

This again depends on whether we are talking about the seller or the buyer.

Disadvantages to the seller of early possession:

  • If the buyer pushes for early possession, but the seller is still occupying the property, this may create problems and stress for the seller.
  • The seller still owns the house, and the legal title and responsibilities do not fully get passed to the buyer until settlement is completed. Early possession does not mean that the seller gets settlement monies.
  • Without proper licencing terms, rental agreements, or early occupancy agreements in place, the seller may be liable for damage incurred by the early occupancy of the buyer, as the seller is still the owner of the property until settlement.
  • If settlement does not proceed as planned, it may be difficult or costly for the seller to get the buyer to vacate the property. Legal action may be needed in some cases.
  • There is a risk of the property incurring major damage during the buyer’s occupancy, so that when the seller finally gets them to vacate the property, its condition may have become poorer and thus its value might be lower.

Disadvantages to the buyer of early possession:

  • If the buyer occupies the property earlier they will have to start paying for land, strata, and water rates earlier too, from the date of occupancy. The responsibility to maintain the property in the same condition at the signing of the contract shifts from the seller to them, the buyer, immediately after occupancy.
  • If damage occurs on the property during buyer occupancy, the buyer cannot cite it as a reason for delaying, refusing, or halting settlement. 
  • The buyer generally needs to agree to make the sale unconditional, which may be a problem if there are already outstanding conditional issues which the seller had agreed to take care of prior to early possession.
  • If the settlement fails (for whatever reason), the buyer may still be liable to pay for stamp duty because they had already obtained use of the property.
  • The buyer will be responsible for the property as soon as they occupy it, and so must take out additional insurance agreeable to the seller.
  • If the settlement falls through after the buyer has taken prior possession and done some renovating, landscaping or other major installations, the buyer may not be able to recover his costs, and may even have to spend extra to restore the property to its prior condition.

Therefore, early possession is not a decision to be made lightly. It will be prudent for both parties to consult their conveyancers or lawyers, and, if they decide to still go ahead, ensure that conditions and legal paperwork is all in good order.

How to make proper arrangements for early possession?

  • Get expert advice from your conveyancer or lawyer as to the specifics of the early possession agreement, so that both seller and buyer are very clear about their respective obligations. REIWA has standard prior possession agreements (depending on the length of time early possession is required for) which may be useful.
  • Negotiate an additional ‘licence fee’ or rent from the date of occupation to the settlement date that the buyer pays the seller.
  • Work out the cost to each party beforehand to ensure it is acceptable.
  • Make the contract unconditional, and ensure a substantial deposit is paid and held by the real estate agent.
  • The seller must receive evidence that the buyer has arranged for adequate insurance.
  • The buyer has to put on record that the property was received in good working order and has passed mandatory inspections. They must also agree to maintain the property as is.
  • Utilities should be moved to the buyer’s name.

How KDD Conveyancers could help

While early possession agreements are not common these days (except under clear licence or occupancy agreements), some sellers and buyers may seriously want to consider it for their own reasons. Whether you are a property seller or buyer, you can potentially save time and money, as well as reduce stress, by engaging qualified conveyancing professionals like ourselves to look over your settlement contract (which sometimes runs to 100s of pages long!) and ensure that settlement is still completed smoothly where the buyer has taken early possession of the property.

Our caring and experienced specialists can help you create a positive property settlement experience that is as supported, smooth flowing, and pleasant as possible. We have the people and technology to make it work out right for you. Ask us to find out how you could benefit from our input.

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