Last month, a client asked us about leasebacks, also known as sale-leasebacks or post-closing occupancy agreements. It’s not something that comes up in every transaction, but when it does, it’s usually because a seller needs more time after closing or wants to remain in the home temporarily for financial or logistical reasons. When structured properly, a leaseback can be a smooth, mutually beneficial solution. sale-leasebacks
When Does a Leaseback Make Sense?
A leaseback occurs when a seller transfers ownership of their home but continues living in it for an agreed upon period, paying rent to the new owner. The seller becomes the tenant, and the buyer becomes the landlord.
Sometimes, a seller will make the leaseback a condition of the sale meaning they will only accept an offer from a buyer willing to let them stay on for a set period. When this happens, the pool of potential buyers becomes more limited. Typically, the most suitable buyers fall into two groups:
1. Investors
They’re already comfortable being landlords and often appreciate having a tenant in place immediately.
2. Buyers planning a future rebuild
This includes people who:
• Are waiting on permits to tear down and build new
• Want a buffer period before starting construction
• Don’t want to live in the home themselves but would like to generate income in the meantime
In these cases, the buyer gets an automatic tenant and a unique advantage:
The tenant knows the home extremely well and often takes great pride in maintaining it, since they were the previous owner.
How the Financials Typically Work
Because the seller is asking for the convenience of staying on, the rent is usually slightly higher than market value to make the arrangement attractive for the buyer.
For example:
If comparable homes in the area rent for $3,500/month, a leaseback might be set closer to $3,800/month.
This premium:
• Compensates the buyer for taking on the role of landlord
• Helps offset risk
• Encourages the seller to remain as the tenant rather than seeking other rental options
Another benefit for the buyer is convenience:
They avoid advertising the property, screening tenants, and managing showings. The tenant is already in place.
How the Process Typically Works
- Terms Are Negotiated Early
Before the deal becomes firm, both parties agree on the length of stay, rent amount, utilities, maintenance responsibilities, and insurance requirements. - Everything Is Documented Clearly
A formal post-closing occupancy agreement outlines all terms, including rent, deposits, responsibilities, and the move-out date. - Closing Day
Ownership transfers to the buyer, but the seller remains in the home as a tenant. - Lease Period
The seller pays rent for the agreed-upon period, usually anywhere from a few days to a few months. - Vacant Possession Transfers
Once the leaseback ends, the seller moves out, and the buyer takes full occupancy.
The Importance of Proper Documentation
Everything must be in writing, with responsibilities clearly spelled out so both parties understand the arrangement.
It’s also wise for both parties to sign Form N11 – Agreement to End the Tenancy, which confirms the agreed-upon move-out date. This helps prevent misunderstandings and ensures the tenancy ends smoothly at the agreed time.
Legal review is always recommended for any post-closing occupancy arrangement to ensure both parties are protected.
Our Takeaway
Leasebacks aren’t the right fit for every situation, but when structured properly, they can create a flexible, practical, and mutually beneficial solution. Sellers gain breathing room during a transition, and buyers, especially investors or future builders, gain a property with a built-in, reliable tenant.
If you’re considering a move and think a leaseback might be helpful, we’re always here to walk you through the details. With the right guidance and documentation, a leaseback can turn a potential timing challenge into a win-win.win.