Understanding the Seller License to Remain In Possession Addendum

Understanding the Seller License to Remain In Possession Addendum

By: D. Keith Dunnagan, Esq. and Trey Van Dyke (2L)

July 27, 2021

A low inventory and a historic demand have often placed California homeowners in precarious positions as they consider if and when to sell. Many Sellers dream of selling at the top of the market but without a magic eight ball, that is a very difficult thing to predict! The traditional 7/8 year business cycle is presently out the window! Fortunately, California Association of Realtors® (“C.A.R.”) provides some excellent tools to help Sellers plan and strategize when the best time to sell might be for them, and for the market.

One of these tools is the Seller License to Remain in Possession Addendum (“SIP”). This is not a standalone agreement or a lease agreement, but instead is to be used in conjunction with the original offer (Residential Purchase Agreement (“RPA”)) or any other negotiated instrument that’s a part of the main contract to purchase the home (e.g. a Counter-Offer). This form should be used when the Seller wishes to occupy the home for less than 30 days after the close of escrow. One example of when this might be useful is if the Seller wants to get the home on the market but needs more than 30 days and less than 60 days to move out. There could be an infinite number of reasons for this, but if the Seller accepts an offer with a 30-day escrow that has a SIP agreement attached, the Seller will have that extra time to move their personal belongings out of the home after close of escrow. Another example may be if the Seller receives an enticing all-cash 7-day close offer from an investor, but understandably needs more time to make arrangements. This is a great opportunity to use the SIP to close early, take the funds, and still have a few weeks to move out.

A critical legal point to understand about the SIP is that when the Buyer agrees to its terms, the Buyer is granting a license, not a lease. “[A] license is an authority to do a particular act, or series of acts, upon another’s land, without possessing any estate therein.” 2 James Kent, Commentaries on American Law *452-53 (George Comstock ed., 11th ed. 1866). In more modern terms, a licensee occupies the land only by permission and holds no legal interest in the property. In Property Law, an owner has what is called a “bundle of sticks” which are the many rights that come along with ownership. A lease is when the owner actually gives one of these “sticks,” the right of possession, to the leasee. With a license, the owner is not giving away any “sticks,” only allowing the licensee to be on the property without trespassing. As we go through the form, keeping this in mind will help explain why the SIP looks different than a lease agreement… because it is not one!

The SIP form begins with an opportunity to attach this agreement with the RPA or another key agreement for the sale of the property. The SIP explains that “the Addendum is intended to grant Seller a license to remain in possession of, and use, the Property after the Close of Escrow.” (C.A.R. Form SIP, Revised 12/17). The length of time is selectable by Agents and their clients and may be deemed in days after close of escrow or a specific date that the license ends. Section two determines the consideration that the Seller is providing to the Buyer in accepting the agreement. Without getting too much into Contract Law, every contract must have consideration. This is basically a requirement that one side gives something to the other in exchange for a promise; otherwise, the agreement may be interpreted as a non-binding gift. In this case, the Seller is giving money to the Buyer in exchange (i.e. consideration) of the promise to be able to occupy the home with permission from the Buyer/new homeowner. You’ll notice that this is called a “License Fee” and is not rent. The most common way this is handled is one large sum is given to the Buyer from the Seller’s proceeds and it is either held in escrow, or just given to the Buyer at closing. Some previous tenants may be familiar with a security deposit, which won’t be found on the SIP form. Instead, there is a “Delivery of Possession Fee.” This is an amount of money that must be returned to the Seller within 5 days after the Seller leaves the property, as long as the property was maintained in the same condition as agreed.

The Seller is responsible for maintaining the property, any pool, all landscaping and will pay the utilities during their occupancy. The Seller also agrees to allow the Buyer/new homeowner to enter the home with 24 hours notice for any number of reasons; including allowing prospective purchasers to view the property (well that’s a quick turn around!) and/or allowing services like contractors or even to make repairs. A key difference between a lease and this license is that the license is not assignable or transferable without the Buyer/new homeowner’s permission; meaning it is only good for the Seller. Of course, like almost all other C.A.R. forms there is space to negotiate these terms further in the last section. Agents and Sellers should be advised that for a short time period, use of the SIP is recommended but if the Seller needs to remain for longer than 30 days, the Residential Lease After Sale (“RLAS”) form should be used instead of adding further terms to the bottom of the SIP.

The SIP is a great tool to add some much-needed flexibility to the rigidity of the Purchase Agreement and give homeowners some options on when they sell and when they need to move out. Keep in mind the limitations of a license versus a lease and make sure that it’s the right tool for the job.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.

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