What Is a Seller Leaseback?

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 What Is Real Estate Law?

Real estate law governs the process of buying and selling homes and pieces of commercial real estate. These laws also provide specific legal protections for:

  • Buyers;
  • Sellers;
  • Land owners;
  • Contractors;
  • Real estate agents; and
  • Builders.

During any real estate transaction, it is important that the sales and purchase documents are written using clear language, in order to avoid problems and delays later on. Litigation could be necessary when the parties to a transaction have a dispute, such as:

State real estate law regulates commercial and residential real property transactions, as well as landlord-tenant relationships. Federal law protects against discrimination under the Fair Housing Act, as well as for environmental violations.

What Are Home Sales Transactions?

Home sales transactions are legal transactions associated with the sale and purchase of a residence. These transactions generally refer to buying and selling a home, but may also include other types of property, such as condos.

Generally speaking, home sales transactions involve the straightforward sale of a new home, and takes place between a buyer and the construction developer. However, there are some specific circumstances in which a home sales transaction may involve:

  • Owner-to-buyer sales, in which the buyer purchases the home from the previous owner;
  • Sales from a bank or lending company, such as a foreclosure sale; and
  • Sales which involve the court system, such as a judicial sale.

It is important to note that the laws which govern home sales transactions vary by state, as well as according to the type of property that is being sold.

To reiterate, there are many different parties who may be involved in a home sales transaction. This can include, but may not be limited to:

  • The buyer;
  • The seller;
  • A mortgage lender or other loan companies;
  • A property appraiser; and
  • In some cases, judicial officials.

In some cases, a home sales transaction is conducted only between the owner and the purchaser. However, in most home sales transactions, an agency relationship is necessary. Each party may be represented by:

  • Real estate brokers;
  • Real estate agents; and
  • Lawyers and other such professionals.

Every home sales transaction requires a legal writing in order to conduct and finalize the sale. This legal writing is known as a real estate contract, or a home sales contract. Pursuant to the Statute of Frauds, all sales involving real property must be in writing. What this means is that a home sales transaction cannot be orally agreed upon, due to the fact that a court would not honor such a major transaction without the use of a valid and written document.

A real estate contract contains various provisions related to the home sale, including:

  • A description of the property that is being sold;
  • The final purchase price;
  • The terms of payment; and
  • Whether there are any outstanding issues with the home which legally must be disclosed.

Home sales transactions are generally standardized. However, some may contain specific provisions, including:

  • An exclusive right to sell;
  • Specific instructions regarding additions or changes to the structure of the home; and
  • Non-litigation or arbitration clauses, in which the parties agree not to sue each other in the event of a legal dispute.

Some other examples of legal issues that should be considered during any home sale include:

  • The Writing Requirement: As was previously noted, home sales contracts must be in writing. The writing should be signed by all parties involved, and should adhere to local and state laws;
  • Broker Agreements: If the seller is working with a broker, they must create an agreement contract which states sales terms, broker fees, and other such matters;
  • Appraisals: Disputes associated with the value of the home can be avoided by hiring a professional appraiser to determine the sale price;
  • Loan Qualifications: A home loan is a common basis for many real estate lawsuits. In order to avoid as many loan qualification disputes as possible, the buyer should verify the loan qualification requirements in their area; and
  • Disclosures: The seller of a home is only required to make disclosures of defects up to a certain point. In many jurisdictions, it is on the buyer to determine whether the home has any dangerous conditions or defects.

What Is A Seller Leaseback?

A seller leaseback is a financial transaction in which a person sells property, and then leases or rents from the new property owner. This is also called a seller rent back or sale-leaseback. What this means is that the seller no longer owns the property, but lives in the property for the length of time that is stated in the rental agreement. The seller reaps profit from the sale of the property, while the buyer is assured of rental income coming from the lease agreement.

The seller can benefit from a seller leaseback if they wish to sell their home, but has not yet found another place to live. Additionally, even if the seller has found another residence, the seller may require the proceeds from the sale of the home in order to purchase the new property. As such, the seller will need a place to live from the time between the closing on the sale of the home, and the time of the closing on the purchase of the seller’s new home.

Because of this, it is ideal that both transactions would occur nearly simultaneously, with only a 30-day lapse between them. It is during this 30-day time period that the seller could leaseback the home from the buyer.

How Do I Protect My Rights In A Seller Leaseback?

Whether you are the buyer or the seller in a seller leaseback arrangement, it is recommended that you protect your own rights by stipulating the terms and conditions of the rental agreement. This should be done in a residential real estate contract.

To reiterate, varying state laws may affect how a person can protect their rights in a seller leaseback. An example of this would be how in California, completing the California Association of Realtors (“C.A.R.”) form called a Purchase Agreement Addendum (“PAA”), a realtor can specify the terms and conditions of the seller leaseback. Simply put, this form modifies the purchase contract.

Additionally, if the seller intends to lease back the property for fewer than 30 days, they would need to check a specific box on the PAA form. This would be next to the statement: “Seller to Remain in Possession After Close of Escrow.” If the seller plans to lease back the property for 30 or more days, they would need to use the form Residential Lease After Sale (C.A.R. Form RLAS).

To continue with the example of California, on the PAA form, the seller and the buyer can agree on the following:

  • Rental amount;
  • Security deposit;
  • Late charges in the event of late rental payments;
  • Utilities to be paid by the seller; and
  • Utilities to be paid by the buyer.

Additionally, this PAA form stipulates that the seller:

  • Is to maintain the property;
  • Is to make the property available to the buyer to make repairs;
  • Shall not sublet or assign the property without the buyer’s prior written consent; and
  • The seller’s personal property is not insured by the buyer, as the seller must have their own insurance.

Do I Need An Attorney For Help With A Seller Leaseback?

If you are involved in a seller leaseback arrangement, you should consult with an area real estate attorney.

An experienced and local real estate lawyer can help you understand your legal rights and options according to your state’s specific real estate laws. An attorney will also be able to represent you in court, as needed, should any issues arise.

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