Typically the agreement will set a per diem penalty of $1,000 or more if the seller stays past the end date.
When you are buying in New York City, a good strategy for beating the competition is to find out what the seller wants and be the buyer who meets their needs. If a seller needs to close on the sale before they can move out, that could mean entering into a post-closing possession agreement, which allows a seller to remain in the apartment beyond the closing date.
This kind of agreement usually happens when a seller needs to qualify for the purchase of their next residence by “either getting rid of the debt of the first place and netting the profit to buy another place or just netting the profit of the first place to buy another place," said attorney Daniel Gershburg, a partner at Konner Gershburg Melnick Darouvar.
[Editor’s note: A previous version of this article was published in August 2023. We are presenting it again with updated information for August 2024.]
In other words, a post-closing agreement "allows the seller to only move once—from the home they are selling into the new home once they close on that purchase," said Adam Stone, a real estate attorney at The Stone Law Firm. "It may be too difficult for the seller to close on their purchase until they have the proceeds from their sale."
Instead of being delivered a vacant apartment on the closing date, with this type of agreement, the buyer allows the seller to live there, and in exchange, the seller covers the buyer’s carrying costs—such as maintenance fees and the buyer’s daily mortgage interest, said Adam Korn, an attorney at Konner Gershburg Melnick Darouvar.
Gershburg says most agreements are fairly short, such as a week to 10 days, although he has negotiated agreements of up to 45 days.
But these agreements have been less common recently, possibly because buyers that can close right now are using cash, said Elise Kessler, an attorney at Braverman Greenspun. Cash deals tend to close more quickly than financed sales, and cash buyers don’t have to worry about purchasing before their mortgage rate lock expires.
“I have not had a deal in the past year where one was required,” Kessler said.
Read on for the ramifications of signing this seller-initiated contract.
Being adaptable around closing and moving schedules could result in a winning offer if it comes to a bidding war, but be aware that post-closing possession agreements come with risks—and those risks fall mainly on the buyer.
"I see it as a risk for a purchaser to agree to this," Stone said. "The risks can be lessened with a well-drafted post-closing possession agreement, but the risks wouldn’t be eliminated."
That's because, as a buyer, you are relying on the seller to leave by the arranged date, and there will be penalties if they don’t. Still, there’s one disadvantage for sellers: Sellers who introduce a post-closing possession agreement might scare off potential buyers who don’t want to take on that kind of risk.
A post-closing possession agreement is difficult to navigate on both sides of a deal, but you might be able to close on the deal by agreeing to sign the dotted line (assuming you really, really have your heart set on the place).
With a post-closing possession agreement, both sides need to show flexibility, Kessler said.
“Normally, post-closing agreements have an outside date by which the seller must move out or pay a per diem amount for each day the seller does not vacate after the outside date,” she said.
The legal term for these per diem costs is liquidated damages or penalty provisions. Typically the amount can be “substantial in addition to the maintenance and interest payments being paid by the seller,” Kessler said. For example, this might be a fine of $1,000 or more for every day the seller overstays beyond the date outlined in the contract.
Although it looks like the seller is renting back the apartment they’ve just sold, the contract you sign is a license, not a lease. This is important, Kessler said, because “the parties do not want their relationship to be deemed a landlord-tenant relationship, which gives the parties different rights.”
"A tenant has many more rights in NYC and New York State, and any eviction proceeding would have to go through housing court, which can take a very long time and is generally skewed in favor of tenants," Stone said. He added that a lawsuit based on a different type of contract such as a license agreement should be in civil court or supreme court.
Boards are not parties or signatories in post-closing agreements, but Kessler said it is possible they could require an escrow payment to cover cleaning fees or other costs. As a general rule, a co-op board will need to be notified and may make additional requirements, such as charging a sublet fee.
Your agreement might also involve the seller putting funds in escrow if you are concerned the apartment won’t eventually be delivered vacant and you will be left dealing with additional belongings that haven’t been removed. Additionally, an escrow term might protect you from any damage to the place. The funds are released to the seller after they have moved out and fulfilled all the requirements outlined in the agreement.
—Earlier versions of this article contained reporting and writing by Emily Myers.
