It’s not uncommon to see homeowners ask for additional time after closing to get their “house” in order. In a sellers’ market where new listings are scarce, owners are requesting time – days or weeks – to find their next residence and move.
Buyers, often frustrated by losing bids on multiple homes, agree to the unconventional arrangement, sometimes without much thought. Once the home is sold, roles are reversed … with a twist: Buyer becomes owner and landlord while seller turns tenant, highly protected by state and local occupancy laws.
The acceptance of becoming a landlord to win a bidding war is loaded with risk for buyers and can easily become a protracted situation. Just ask a real estate attorney – because you will need one.
An update to the Washington state landlord/tenant law that went into effect in late 2021 (after pandemic-related eviction moratoria were lifted in most areas) creates a minefield of potential issues for buyers-turned-owners. Layer in stricter ordinances in cities such as Seattle, Tacoma, Auburn and Burien could easily create a scenario where buyers face months’ delay to occupy their rightly purchased home. (King, Pierce and Snohomish counties have apparently also updated – or are working on updating – landlord/tenant laws that would apply to unincorporated areas.)
The use of a so-called rent-back agreement – whereby the seller agrees to rent the home from the buyer after closing – is becoming more commonplace. Unfortunately, what is also more common are scenarios in which sellers are unable to find a replacement home after weeks of searching.
Buyers have options to evict sellers/tenants but they often take three months or more to kickstart the process. Evictions also depend on the type of home (single-family vs. multi-family), plans by the owners to occupy the home, or whether evict notices were written and delivered properly and within the correct timeline. Municipalities are revising laws on this matter more frequently. Minefield, indeed!
Washington REALTORS®, which represents more than 23,000 real estate professionals, strongly advises buyers considering a rent-back provision with their offer to seek the counsel of a real estate attorney with knowledge of the shifting laws. Attorneys can write language into the offer that may have more teeth than the standard rental agreement that a Realtor would include.
In fact, in its guidance to member brokers, the Northwest Multiple Listing Service “recommends that buyers do NOT give sellers a right to occupy the property after closing” and cautions “a buyer may have limited rights to remove the seller from the property” if the seller fails to vacate. The MLS advisory was published much earlier than the recent enactment or revisions of tenant-favorable laws.
Picture this: Buyers agree to allow Mr. and Mrs. Seller to rent the home for two weeks after closing and charge $0 as an incentive to work together on the purchase and sale agreement. Two weeks come and go. Seller, no longer represented by the listing agent, is in direct communication with the buyer/landlord and asks for more time to find a new place to live. What is a buyer to do – say “no”?
Complicating the matter is that, under Washington law established in 2021, landlords cannot begin eviction proceedings to occupy the home until having given 90 days’ notice (60 days if the lease agreement was for six months or more, 120 days if the new owner does not plan to occupy). Serving notice allows the new owners to begin pursuing the home through the legal system, which can take an additional 2-3 months to process.
In other scenarios, tenants can face a 14-day eviction notice if they stop paying rent and refuse repayment options. There are also notice periods of at least 60 days to raise rent (180 days in Seattle).
Governments at the county and municipal level, including the City of Seattle, may have different notice guidelines and protections for tenants, such as a requirement for landlords to register the property as a rental. Without proof of registration, the eviction clock in most cases cannot begin. (Seattle’s eviction moratorium, which has been extended several times during the pandemic, was scheduled to end on Feb. 14, 2022. After this article was published the city extended the moratorium until the end of February.)
Without buttoning down the process and drafting a qualifying eviction notice, the landlord may have to start again from step one – losing valuable time. Complicating the matter is that the law generally pertains to lease agreements of six months or more and interpretation of the newly agreed legislation is somewhat cloudy for short-term buyer/seller rentals.
And what is the remedy to a buyer/landlord for failure of seller/tenant to vacate the home when rent was listed as $0? You got it: zilch, zero – not to mention the costs related to the buyer retaining attorneys and possibly for accommodation, storage, loss of work, as well as pain and suffering to members of the household. Adding insult to injury, there are scenarios in which the law states a landlord who completes an unlawful eviction would be held liable and required to pay penalties for economic and emotional damage inflicted on the departed tenants.
Attorneys can generally protect their buyer/landlord clients from financial loss by including in the purchase and sale agreement a request to hold some of the sellers’ net proceeds in a trust account until the tenants leave. Similarly, the agreement may include a large security deposit that should incentivize sellers to find a new home sooner. But what happens if the sellers need those funds to make a down payment on their next home? Tenants could be stuck living in the buyers’ homes even longer without those held funds.
This is a siren call to all buyers: Think long and hard before agreeing to any rental agreement with the sellers. Talk to a real estate attorney who can advise you every step of the way.
———-
Note: I am a licensed real estate broker in Washington and do not wish to characterize this blog post as legal advice. The post is strictly informational to anyone wishing to understand the risks of renting property in the state.