We have written about the Seller’s Temporary Residential Lease previously, but we didn’t go in depth on the form or what it all meant, so we thought we’d jump in head first and tackle this one. The form is typically used when a seller just needs a few extra days to pack up and move out, perhaps because the place they’re moving to isn’t ready yet or the buyer wanted a short closing timeframe, but the seller knew they’d need longer to actually vacate the home. Whatever the reason, the Seller’s Temporary Residential Lease can come in handy at times. It creates a short term lease between the owner (the buyer) and the tenant (the seller)…it can get a little confusing since the seller was once the owner, but now the buyer is. Don’t worry, let’s take it step by step.
Seller’s Temporary Residential Lease
The first two paragraphs of the form are simple – the first paragraph defines the parties, the landlord/owner/buyer and the tenant/seller, and the second one defines the property being leased. Let’s take a deeper look at the rest of the paragraphs that make up the form, shall we?
3. TERM: The term of this Lease commences on the date the sale covered by the Contract is closed and funded and terminates ___________, unless terminated earlier by reason of other provisions.
Paragraph 3 covers the term of the lease, which starts on the date of closing and funding and ends on the date specified in this paragraph (although it can terminate early for various reasons). It should be noted that this form cannot be used to lease a property for more than 90 days after the closing takes place. It’s not all that common for a seller to want to leaseback their property for more than 90 days, but it can happen. In this case, it would be advised to draw up a Residential Lease
4. RENTAL: Tenant shall pay to Landlord as rental $ ____ per day (excluding the day of closing and funding) with the full amount of rental for the term of the Lease to be paid at the time of funding of the sale. Tenant will not be entitled to a refund of rental if this Lease terminates early due to Tenant’s default or voluntary surrender of the Property.
This paragraph covers the amount of the rent – this is calculated as a per diem (per day) rate with the entire amount being due at the time the sale of the home is closed and funded. The per diem rate is typically calculated by taking the owner’s mortgage payment and dividing by 30 (days in the average month), although it can be any amount negotiated between the two parties. A sum of zero is never advised as many legal scholars argue that that fails the “good and valuable consideration” test (we’re not lawyers, so it’s best to consult with an attorney if you wish to do something like this).
5. DEPOSIT: Tenant shall pay to Landlord at the time of funding of the sale $ _______ as a deposit to secure performance of this Lease by Tenant. Landlord may use the deposit to satisfy Tenant’s obligations under this Lease. Landlord shall refund any unused portion of the deposit to Tenant with an itemized list of all deductions from the deposit within 30 days after Tenant (a) surrenders possession of the Property and (b) provides Landlord written notice of Tenant’s forwarding address.
Much like any standard lease, you will want to collect a deposit from the tenants. This is used to ensure that the property is kept in good condition. Like any rental, damages to the property can be deducted from the security deposit at the end of the lease term. The owner (buyer) will need to provide an itemized list of those deductions within 30 days of the end of the lease (if it terminates early, that termination date would begin the 30 day window). The tenant (seller) must provide the landlord a forwarding address for this purpose.
6. UTILITIES: Tenant shall pay all utility charges except ________________ which Landlord shall pay.
7. USE OF PROPERTY: Tenant may use the Property only for residential purposes. Tenant may not assign this Lease or sublet any part of the Property.
Paragraph 6 allows the parties to define any utilities that the landlord (owner/buyer) shall pay. The tenant is responsible for all utilities unless otherwise noted here. Paragraph 7 simply states that the tenant may only use the home for residential purposes (ie, you can’t start up a day care in the home or use it as an office space for your company) and that the tenant may not sublet or assign the lease to anyone.
8. PETS: Tenant may not keep pets on the Property except ___________________________.
Pets are not allowed unless defined here. Typically, if the sellers (now the tenants) have pets currently, they would be written into the lease here and allowed to stay, but no new pets can be added during the lease.
9. CONDITION OF PROPERTY: Tenant accepts the Property in its present condition and state of repair at the commencement of the Lease. Upon termination, Tenant shall surrender the Property to Landlord in the condition required under the Contract, except normal wear and tear and any casualty loss.
10. ALTERATIONS: Tenant may not alter the Property or install improvements or fixtures without the prior written consent of the Landlord. Any improvements or fixtures placed on the Property during the Lease become the Property of Landlord.
11. SPECIAL PROVISIONS: _____________________________________________________
Paragraph 9 covers the condition of the property – that the tenant accepts it in its current state and that they will turn the property over to the owner in the condition as required by the contract. Normal wear and tear is covered here as well. Casualty loss is an entire conversation and is covered in Paragraph 14 of the One to Four Residential Contract (Resale) (we cover that paragraph in our series about the residential contract, specifically Part 3 of the series). Paragraph 10 covers any alterations or additions to the property. These must be approved in writing by the landlord (buyer). Any improvements or fixtures installed during the lease period become property of the landlord at the end of the lease.
Paragraph 11, Special Provisions, allows for any pertinent details to be covered that are not already part of the lease contract. It should be noted that care must be taken with this section as agents can become guilty of the illegal practice of law based on what they write in here. It is always advisable that anything that is more than just a statement of fact should be written in by a lawyer in order to protect all parties. Real estate agents are not attorneys and cannot adjust the intent or meaning of the contract with items written in here. If you have special requirements that call for items written into this section, consult an attorney.
12. INSPECTIONS: Landlord may enter at reasonable times to inspect the Property. Tenant shall provide Landlord door keys and access codes to allow access to the Property during the term of Lease.
13. LAWS: Tenant shall comply with all applicable laws, restrictions, ordinances, rules and regulations with respect to the Property.
The landlord (buyer) has the right to enter the home at reasonable times and the tenant must provide keys and access codes for that purpose. Paragraph 13 is pretty self explanatory – obey the law.
14. REPAIRS AND MAINTENANCE: Except as otherwise provided in this Lease, Tenant shall bear all expense of repairing and maintaining the Property, including but not limited to the yard, trees and shrubs, unless otherwise required by the Texas Property Code. Tenant shall promptly repair at Tenant’s expense any damage to the Property caused directly or indirectly by any act or omission of the Tenant or any person other than the Landlord, Landlord’s agents or invitees.
Anytime something gets underlined, you know it has to be important. The Texas Real Estate Commission thought Paragraph 14 was that important. Think of this as the “you break it, you bought it” rule – the tenant (seller) is responsible for the home while they occupy it and they have to maintain the property and make any repairs needed. This goes back to Paragraph 9 as well, which requires the tenant to turn over the property in the condition agreed upon in the contract, so anything that breaks during that period will need to be repaired in order to bring it back to that condition. Also of note, the language in this paragraph puts particular attention on “the yard, trees and shrubs,” and if you’ve been reading this site long enough, you’ll know that any time you see very specific language in a contract or form, it’s usually because someone was sued over it before. Keep the grass watered and all those trees and shrubs trimmed and looking great.
15. INDEMNITY: Tenant indemnifies Landlord from the claims of all third parties for injury or damage to the person or property of such third party arising from the use or occupancy of the Property by Tenant. This indemnification includes attorney’s fees, costs and expenses incurred by Landlord.
The key word is indemnity, defined as a “security or protection against a loss or other financial burden.” Basically, the tenant can’t pass on the responsibility of a claim to the landlord (buyer). If it happens on the tenant’s watch, it’s their responsibility.
16. INSURANCE: Landlord and Tenant shall each maintain such insurance on the contents and Property as each party may deem appropriate during the term of this Lease. NOTE: CONSULT YOUR INSURANCE AGENT; POSSESSION OF THE PROPERTY BY SELLER AS TENANT MAY CHANGE INSURANCE POLICY COVERAGE.
Both parties should get insurance. The all caps section at the end is important to take note of – any time you have a rental property, your insurance needs change. Homeowners insurance typically does not cover rental situations, so you’ll want to call your insurance agent and make sure you put into place a policy that covers you.
17. DEFAULT: If Tenant fails to perform or observe any provision of this Lease and fails, within 24 hours after notice by Landlord, to commence and diligently pursue to remedy such failure, Tenant will be in default.
18. TERMINATION: This Lease terminates upon expiration of the term specified in Paragraph 3 or upon Tenant’s default under this Lease.
Default is always a dangerous word in real estate. Basically you don’t ever want to be on the wrong side of it. Paragraph 17 lays out how the tenant may be found in default of the lease and that if the landlord (buyer) notifies them that they are not performing their duties within the lease, the tenant has 24 hours to begin the process of correcting that situation or be found in default of the lease. Paragraph 18 covers termination of the lease, which occurs either at the expiration of the lease as defined by Paragraph 3 or if the tenant is in default of the lease.
19. HOLDING OVER: Tenant shall surrender possession of the Property upon termination of this Lease. Any possession by Tenant after termination creates a tenancy at sufferance and will not operate to renew or extend this Lease. Tenant shall pay $ _____ per day during the period of any possession after termination as damages, in addition to any other remedies to which Landlord is entitled.
If the tenant (seller) stays in the home past the termination date, they will pay a holdover rate as defined in this paragraph. This rate is meant as damages paid to the landlord and is not a way to extend the lease. The landlord can also pursue any legal remedies they are entitled to. Typically, this rate will be much higher than the per diem rental rate in order to discourage a tenant from trying to stay longer than the lease was meant to last.
20. ATTORNEY’S FEES: The prevailing party in any legal proceeding brought under or with respect to this Lease is entitled to recover from the non-prevailing party all costs of such proceeding and reasonable attorney’s fees.
Similar to language in various contract forms and leases, this can be summed up as the “loser’s clause.” Basically, if you lose in a lawsuit, you can be held responsible for costs associated with the lawsuit.
21. SMOKE ALARMS: The Texas Property Code requires Landlord to install smoke alarms in certain locations within the Property at Landlord’s expense. Tenant expressly waives Landlord’s duty to inspect and repair smoke alarms.
22. SECURITY DEVICES: The requirements of the Texas Property Code relating to security devices do not apply to a residential lease for a term of 90 days or less.
The Texas Property Code is very specific about smoke alarms and where they must be installed in any rental home. For the purpose of this lease, the landlord (buyer) will not be responsible for inspecting or repairing the smoke alarms. The Texas Property Code also covers security devices required on a rental property, but Paragraph 22 clears it up that those requirements do not apply to a lease for 90 days or less (and remember, you cannot use the Seller’s Temporary Residential Lease for more than 90 days).
24. NOTICES: All notices from one party to the other must be in writing and are effective when mailed to, hand-delivered at, or transmitted by facsimile or electronic transmission as follows:
The final paragraph is for contact information for the landlord and tenant so that any notices can be given in writing and delivered in a timely fashion. It is advisable to put all forms of contact here, so that no matter what the situation, notices can be delivered quickly and efficiently.
Other than some signatures, that’s the entire Seller’s Temporary Residential Lease. It’s not the most common situation, but there are times when it makes sense for the buyers and sellers in a transaction. There is also a Buyer’s Temporary Residential Lease, which is even less common because of some of the inherent risks of putting a buyer into the home before they actually own it, but it does come in handy at times and in certain situations. If you have questions about either temporary lease, give your agent a call and ask them specifics about how it will affect your particular transaction. Like most things in real estate, every situation is different and there are different needs for the parties that need to be solved.
image courtesy of tsaiproject
Thanks for the explanation for item 14. I am the current tenant in my leaseback. My only question is in regard to normal wear and tear. The Texas Property Code states that the Landlords shall cover all repairs caused by normal wear and tear… in my eyes, that means is a component on the AC broke from normal use, then it is their responsibility. Am I misunderstanding the text in item 14?
Additionally, if the repair was done without using the Home Warranty plan I paid for for the buyer, am I responsible for the cost? That seems wrong.
Matt Stigliano says
Lane – We would advise you to contact your real estate agent and discuss the issues with them. The Texas Property Code does require the landlord to pay for such items, but Paragraph 14 requires the tenant to maintain and pay for repairs at their expense. Typically, issues like this are best resolved between the two parties, as once you begin interpreting contracts, there is usually need for a lawyer. Perhaps a good solution can be worked out between you and the new owners of the home and the real estate agents involved in the transaction can provide a sort of middle-man negotiation point in order to work things out so that everyone remains happy and has their needs met. It may be in the best interest of the landlord to use their home warranty as well, since they are the owners now and not fixing something could cause issues on future claims.
This is an excellent explanation of an otherwise confusing document. I have a question on item 14 also. In the event of a typical home owner’s insurance claim, say the instance of a flood or roof damage due to a storm, does this apply under this question as well? It seems to return the home in the previous condition, it would have to but as a “renter”, one would not be maintaining home owner’s insurance on the property. Thanks so much!
Matt Stigliano says
Andrea – this is why Paragraph 16 advises both parties about insurance. The best route is for both parties to call their insurance agents and discuss any temporary changes or additional needs to their policy for the time period of the leaseback. The buyer (new owner) will most likely have the property insured, especially if they purchased with a loan, but they may require some extra coverage for the time period. The seller (former owner) can get what is commonly referred to as renter’s insurance although they will probably want to add some extra protections for the property itself (some policies only cover personal property, although these days most cover the property first, the contents second as many landlords now require this).
Roger Kitzmiller says
This is a great piece of content here. I really like how you simplified it section by section nice job. I’m thinking of doing something similar for my detailed home inspection report. Thanks and keep up the good work.
Matt Stigliano says
Thanks Roger. We would love to see one done for inspection reports – they contain so much information and it can be sensory overload for a buyer. Some of the best inspectors we know are obviously skilled in the process of inspecting, but the ones that really shine are the ones who can help a client understand what it all means. Especially with things that you as an inspector have to mention, but need further explanation. Items that aren’t up to current code are a good example – those items can look incredibly bad on paper, but when the item is explained to the buyer, it can help them understand what the issue is and whether or not they should be concerned about it. The best inspectors are part scientist, part builder, part counselor, part investigator, part encyclopedia/dictionary.
Sherry q says
What time of day does the leaseback expire?
Matt Stigliano says
On Texas real estate contracts, all timelines (except option period) expire at 11:59pm when using promulgated forms. Other forms (such as those written by a lawyer) may have different timelines.