The practice of sellers renting back their home after the sale is increasing in a number of high-end markets, The Wall Street Journal reports. As housing supplies remain tight, some sellers are finding they may need some extra time to relocate. For home buyers, the deal may be appealing because the seller can help to defray maintenance costs until they are ready to move in.
Read more: Luxury Sellers Aren’t Going to Like This
But, real estate agents warn, going from owner to tenant can cause some trouble, if they’re not careful.
For one, sellers may overstay their welcome.
In one notable case, developer Mohamed Hadid sold his 40,000-square-foot Los Angeles home for $50 million in 2010. Hadid, the father of fashion models Gigi and Bella Hadid, requested six months to move out of the home. But in that time span, he had sold the next home he planned to move into as well.
“Six months became a year, a year became two,” Hadid, who has been renting back the mansion for about six years, told The Wall Street Journal. Hadid has been paying rent to the owners and maintenance costs and agreed to reside there until the buyers decided to move in.
Stacy Gottula with The Agency says lease-back agreements in the ultraluxury market are becoming more commonplace. The cost of moving out of a luxury home can be pricey and sellers, as such, may wait until the final hour to make sure the deal goes through before making plans of their own to move out.
But the arrangement can create complications, says The Wall Street Journal. Damage deposits are often negotiated beforehand, but any major disasters fall to the new owners and their insurance policy, says Adam C. Wilner, an attorney and partner with Greenberg and Wilner in New York. Also, in sales that involve financing, renting the property for too long could jeopardize the lender terms, Wilner notes.
Further, a post-possession agreement that is longer than 60 days could make it more difficult to evict the former owner if something does go wrong, says attorney David Deckelbaum of Setttlementcorp in Washington, D.C. Rules vary in markets, however, he adds.
Source: “When Home Sellers Stay on as Tenants,” The Wall Street Journal (March 9, 2017) [Log-in required.]
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