When I make an offer for a property that is subject to a tenant's lease, I first ask the listing broker for a copy of the current lease and then include in my offer that the seller cannot extend or modify the lease from the day of my offer until escrow closes. It is VERY common for tenants to ask sellers to extend their lease for an additional year or more when they find out the property they are renting is going to be sold. They do this to lock in the current amount of rent and/or to make sure they can stay in the property for awhile. If your intent is to live in the property, make sure you get a copy of the current lease and keep it from being extended using the terms of your offer.
I hope this helps,
You have a few questions:
Q1: â€œwhen will the COE term be disclosed â€œ
A1: It is disclosed on page 6 of the standard California Purchase Agreement, line 26. D. You receive a copy of this when you write an offer on a property.
COE = Close of Escrow
Escrow = the process through which the transaction and closing details are worked out for the home you are buying or selling. Escrow in our area normally takes between 21-45 days from signed contract to close. All pertinent details for a transaction go into escrow and are processed (in our area by a title company) until all contractual obligations are completed.
Close = the transaction is completed, all terms of the contract have been met, the deed for the property has been recorded and title (ownership) is now transferred to the new owner. There is no longer a need for the escrow to remain open, so it is closed.
The contract specifies:
(1) The date escrow is supposed to close.
(2) The date and time you are allowed to occupy the property you have successfully purchased.
Q2: â€œcan COE be exploited i.e by perpetually renewing existing lease thus preventing new owner from moving in.â€
A1: In our area, you normally occupy the property you are purchasing the afternoon of the day escrow closes. The seller cannot keep extending the close of escrow without written permission from all parties involved. Normally there is no lease involved â€“ the seller owns (not leases) the property they are selling. If there is a renter in the property, the contract clearly specifies when the renter needs to vacate.
If the seller, as a part of the contract, negotiates a period of time after close of escrow when they â€œrent backâ€ the property from the new owner, then the seller can only occupy the property for as long as specified in the contract. Any extension of the rent back time period needs to be negotiated and agreed upon in writing by all parties.
If a seller refuses to leave once the time periods are up, then the buyer might be forced to start eviction procedures. When we write a contract with rent back for the seller after the close of escrow, we do the following:
(1) Clearly specify all the terms in the contract (length of time, rent per day, time of delivery, etc.)
(2) Make sure the seller is required to leave a deposit in escrow that the seller receives only once they successfully vacate the property after the rent back is over. If they violate the terms of the contract and remain, the buyer has a right to the deposit.
Q3: â€œis it a good idea to purchase a location with Possession COE?â€
A3: Yes - it is the way 99.9% of purchases are handled here in our area.
It means that when the papers are signed by the buyers - they take possession. They will normally do a "walk through" before escrow to be sure the home is in good condition - broom clean and left as promised by contract.
Sometime - the buyers may agree to allow the sellers to remain in the home for a short period after escrow. This is by separate agreement - and is generally limited to no longer then 30 days by the purchasers mortgage lender.
It is best to review the contract thoroughly -and get the advice of your Realtor to determine your specific situation.
Gerard Dunn - Associate Broker