Usually, the timing of an apartment sale aligns well enough to allow sellers to move out — or buyers to move in — right after closing. But there are myriad reasons why that is not always the case. Enter the leaseback agreement, a contract in which the buyer agrees to let the seller stay in the apartment for a specified amount of time after closing.
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Hell’s Kitchen
635 West 42nd Street
$860,000
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1
Hell’s Kitchen
408 West 57th Street
$815,000
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East Harlem
2132 Second Avenue
$675,000
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2
Roosevelt Island
425 Main Street
$945,000
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1
East Harlem
309 East 108th Street
$1,000,000
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2
Turtle Bay
223 East 50th Street
$535,000
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1
Kips Bay
333 East 30th Street
$800,000
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Greenwich Village
20 East 9th Street
$949,000
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1
Murray Hill
20 East 35th Street
$599,000
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Midtown
111 East 56th Street
$549,900
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1.5
Lenox Hill
425 East 63rd Street
$567,000
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Lincoln Square
165 West End Avenue
$725,000
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1
How Does a Leaseback Agreement Help Home Buyers and Sellers?
This setup can prove useful when there is a gap between the closing date and the soonest possible move-in or move-out dates. “People have all kinds of reasons for needing to close when they do,” explains Liz Schwartzberg, a broker with Compass. “A leaseback agreement can help accommodate the nuances of life that impact when people need to move, relative to when they need to close.” For example, existing mortgages or market projections may push buyers and sellers to close before they can feasibly move in or out. And things like long trips or unexpected medical issues can make moving on schedule inconvenient, or impossible.
A leaseback agreement can be particularly useful for sellers who are buying a home at the same time. Especially if they have yet to find their next home — or if it is not yet move-in ready. The agreement gives these sellers two benefits: more time to move out, plus immediate income from the sale, which can be used for their next purchase.
Buyers who do not have an immediate need to move in, meanwhile, receive benefits as well. There’s the security of closing on the home at a set mortgage rate on a set date. But there’s also the promise of regular rental payments from the seller, who effectively becomes their tenant.
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156 Tompkins Avenue
$799,000
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1
Bedford-Stuyvesant
156 Tompkins Avenue
$849,000
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1
Downtown Brooklyn
150 Myrtle Avenue
$849,000
1 |
1
Gravesend
15 Bay 31st Street
$895,000
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2
Fort Hamilton
8701 Shore Road
$489,000
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1
Flatlands
5817 Avenue L
$849,000
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2.5
Marine Park
1814 East 37th Street
$768,888
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2.5
Fort Hamilton
9701 Shore Road
$550,000
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Ditmas Park
1115 Dorchester Road
$500,000
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1
Park Slope
670 President Street
$695,000
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1
Kensington
525 Ocean Parkway
$895,000
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Gowanus
554 Fourth Avenue
$750,000
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1
Do You Need a Lawyer for a Leaseback Agreement?
Schwartzberg “absolutely recommends” working with a real estate lawyer when creating a leaseback agreement. “This can be a delicate situation for a variety of reasons, and one best navigated with attorneys on both sides,” she says. “Both buyers and sellers should consult with their real estate agents, as well as the real estate attorneys assisting them with the purchase or sale.”
How to Set Up an Agreement
“The simplest way to create a leaseback agreement is to have the buyer’s attorney draft a post-closing occupancy agreement that is signed by both parties,” says Schwartzberg. This will formalize a timeline, which is crucial. Leasebacks can last as little as a few days or for much longer periods of time. It’s important for both buyer and seller to understand and approve the limits. Sometimes, a leaseback can be negotiated as an addendum to the contract of sale after signing.
Another key aspect of the agreement is determining the amount of money to be held in escrow. This covers the buyer in case the seller damages the property after the initial walkthrough and closing. Once the seller has moved out, a second walkthrough rechecks the apartment’s condition. “If there are no damages, the escrow, essentially functioning as a security deposit, is released to the seller,” says Schwartzberg. “If there is damage, then the attorneys and brokers have to reconvene and come up with an agreed-upon cost for repairs.”
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Sunnyside
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Beechhurst
9-15 166th Street
$435,000
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Flushing
144-64 Sanford Avenue
$375,000
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South Jamaica
116-20 170th Street
$755,000
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Jackson Heights
37-30 83rd Street
$540,000
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2
Jackson Heights
34-21 78th Street
$395,000
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1
Glendale
82-58 89th Street
$739,000
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2
Forest Hills
67-50 Thornton Place
$599,000
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2
Ditmars-Steinway
19-61 79th Street
$749,000
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1
Jackson Heights
37-30 73rd Street
$359,988
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1
Kew Gardens
118-11 84th Avenue
$430,000
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1
Are There Other Options?
Leaseback agreements only work if the timing makes sense for both parties. “Getting a seller and buyer to match up their timelines perfectly can be very difficult,” says Schwartzberg. Her clients sometimes opt for a simple postponement workaround instead. “In New York, either party can adjourn the closing for up to 30 days, no questions asked,” she explains. “This can give a seller who’s not ready to move out — or a buyer who’s not ready to move in — a bit of leeway.” Note that this route, while it cuts down on legal formalities, can be disruptive to the other party’s plans.