You find the perfect home, your offer is accepted and closing dates are on the calendar. wonderful! Everything must be properly categorized and moved before the timeline suddenly moves, before the sale is final. Wait – can you live in the house before closing?
The answer is yes, and there comes the usage and occupancy agreement (U&O).
Usage and Occupation Agreements are short-term arrangements that allow buyers to live in their homes before closing. It does not transfer ownership or tenant rights, allowing early access while final details are concluded and serves as a legal bridge between contract and termination.
This Redfin article covers everything you need to know.
Key takeout
Usage and Occupancy (U&O) agreements allow buyers to temporarily live in their homes before the sale is officially closed, as with short-term rentals. U&O is generally required when buyers face lease timing issues, employment transfers, or delays in closure due to funding or documentary. It provides useful flexibility, but both parties (buyer and seller) need clear, written agreement and legal guidance to avoid complications.
What is Usage and Occupation Agreement (U&O)?
Simply put, a Usage and Occupation Agreement (U&O) is a temporary arrangement that allows you to move into a home before a sale is officially closed. Think of it like a short-term rental agreement between you and the seller. You will provide a permission to use or reside in the home for a limited time, even though you do not yet legally own it.
U&O accesses you, but does not transfer ownership or full tenant rights. Instead, clearly define the terms of your stay, such as travel date, duration, liability (such as utility and maintenance), and payments to be paid during occupancy.
Why do buyers need it?
Sometimes life doesn’t wait for closing days, and that’s where the U&O contract is useful. This allows buyers to move before scheduled closings. You need to have a more personal reason to close the lease earlier, to move for work.
It also helps when closures are delayed due to funding, paperwork, or scheduling issues beyond personal needs, but buyers still need to access the home. In these cases, the contract allows the buyer to legally occupy the home while protecting the rights of both parties.
U&O Contract Benefits and Risks
Usage and Occupation Contracts can be lifesaver for some home sales, but like all, they come with pros and cons.
Benefits for buyers
One of the biggest perks is to skip multiple movements and smoothen the transition after closing. Sometimes, U&O contracts even prevent temporary homelessness if the buyer does not have any other locations during the gap between closure and movement.
Seller’s Benefits
For sellers, it can be a great financial bonus, especially if the home is already open. They may get used and occupancy payments from the buyer to stay at home after closing.
Risks to keep in mind U&O contracts
While U&O can be extremely helpful, there are some risks to keep in mind.
Sales can collapse and you may have to leave when you have already settled down. If there is no walkthrough to document the condition of your home, a damage dispute can occur. It may be unclear insurance coverage if anything goes wrong while you live there. Legal liability can become difficult if not adequately protected. Some lenders don’t love early occupancy and may delay closures.
Good news? Most of these risks can be avoided with solid agreement and a little legal guidance. It’s all about protecting both sides and keeping things fair.
What terms do U&O contracts have?
Although the details vary, most usage and occupancy agreements cover five key elements.
Occupancy Fee: This is essentially a buyer pays the seller every day and covers mortgages, taxes, insurance and more while he lives in the home before closing. It usually breaks every day, weighing around 1% of the monthly purchase price. So for a $400,000 home, it could be around $133 per day. But in reality, it depends on what you and the seller agree and what is typical in your area. Duration: Specify the exact date that buyers are permitted to live in their homes prior to closing. This makes things clear, so everyone knows how long the early occupancy lasts. Responsibility: An overview of the person who takes care of utility, routine maintenance, repairs during this period, etc. Usually, buyers handle the utilities, which can be negotiated. Insurance: Clarify who will maintain the homeowner or tenant’s insurance during the period of occupancy. This will help protect both parties in case something happens. Keep HARMLESS clauses: Protect the seller from being liable if the buyer or someone else gets injured or causes damage while living in the home early.
Do I need to lower my security deposit?
Yes, as with rentals, you may need to lower your security deposit when signing a usage and occupancy agreement. This will help protect the seller if there are damages or unpaid fees during early occupancy. The deposit amount and refund terms must be clear, so everyone is on the same page.
Document the state of the house before early occupancy
While security deposits help protect the seller, it is important for you that the buyer protects himself, and that’s where the pre-occupying walkthrough comes.
Before moving, walk around the house with the seller to document any existing damages and issues. This is a simple step that can prevent misunderstandings and is an important part of the due diligence process.
>>Read: What is real estate due diligence?
When and how to terminate your U&O contract
Sometimes things don’t go as smoothly as planned. The usage and occupancy agreement clearly outlines how either you or the seller can end an early occupancy arrangement if necessary.
For example, if you miss an occupancy fee payment or cause damage to the property, the seller can ask you to move before the sale ends. On the other hand, if the seller has a reason to cancel, they must follow the procedures set forth in the contract.
Are usage and occupancy contracts perfect for you?
If you need to move to a new home before closing, use and occupancy agreements can be a real lifesaver. You’ll have the flexibility to settle without waiting for all your documents to finish. That said, it’s not without risk. Since you live in the home before you officially own it, both you and the seller should clarify the rules to avoid misunderstandings and legal headaches later.
