You bought a new house. In most cases, at the notary, you also get the keys to that new house. But very occasionally, it is agreed that the sellers of the home may stay in the property for a while longer, while you have already become the owner.
In this article, we explain what to look out for and what the risks are.
Legal delivery and actual delivery
First, we need to explain these two concepts to you. This is because there is a big difference between legal and actual delivery. The legal delivery is the delivery on paper at the notary where everyone signs the delivery deed and with which you, the buyer, have become the owner of a property. The property is then “delivered” to you on paper. Actual delivery is when the keys are handed over. Those keys symbolize getting exclusive use over a property. Again: that actual delivery (the key transfer) in most cases always happens at the notary at the same time as the legal delivery. But so you don’t have to.
We explain everything to you using the following example:
Buyer Koos buys a house from seller Vincent on July 1. It is agreed that buyer Koos will become legal owner on Sept. 1 but the keys are not yet handed over. In fact, seller Vincent may continue to use the property for 1 more month until Oct. 1. Vincent will pay a fee of €1000 to Koos for this month’s use of the property. Vincent is not canceling his energy contract and water contract for a while yet so that for the month of September he will just continue to pay this neatly himself at the utility companies.
Insurance
First of all, it is important to know that the seller – who continues to live in the home without the home actually being delivered – must keep the home insured himself. Also, as a buyer, make sure that you ALSO have property insurance on the property and neatly indicate to that property insurance that the old owner continues to occupy the property for x period of time. Be sure to communicate this both verbally and in writing to the insurer so you can always prove that you reported it properly.
Maintenance obligation
The seller who continues to live in the property for a while (while the property has already been transferred) has a maintenance obligation. This simply means that anything that breaks (dishwasher, broken window, leak, clogged toilet, et cetera) he (the seller) is responsible for it, and must fix these problems.
Notary and mortgage lender
The moment this agreement, that the seller remains in the property after the transfer of ownership, is not known to the bank and/or the notary (because it is not included in the signed purchase agreement) it can cause some problems.
The notary has a power of attorney from the mortgage bank to establish the mortgage right, assuming that the buyer will occupy the property himself. If the notary sees or hears that it has been agreed outside the purchase agreement that the actual delivery will not take place until later because the seller will continue to live for a while, it is his duty to report this to the lender. In the eyes of the notary, this may be a “sham construction” and the notary should then report this to that mortgage lender. This lender (bank) can then revoke permission to transfer the loan provided to the seller as well as prohibit the notary from establishing the mortgage right on the property. If this happens, then ownership of the property cannot be transferred at all because the funds are blocked and the mortgage right cannot be established. And this with all its consequences. This can give the seller the right to declare the buyer in default (after all, he is not taking delivery of the property even though it was contractually agreed) and a buyer who does not take delivery risks the contractual penalty of 10% of the purchase price.
Legal delivery
In this example, the house is neatly legally delivered on September 1 by seller Vincent to buyer Koos at the notary. Signatures are added to the deed of delivery (=new title deed) and the notary has this deed registered at the land registry after which ownership is transferred. In most cases it is agreed that the full purchase price is also paid at this legal delivery, so here too.
Rent
It is Sept. 1 and ownership of the property has passed from seller Vincent to buyer Koos. The keys were not transferred because it was agreed that Vincent could continue to live in the house for another month. But Vincent must then pay a fee of €1000 for that month. This undertaking could be interpreted as a sale & leaseback construction which could then be interpreted by the courts as, “RENTAL. In fact, according to the Dutch Code, there is rent when you give something in use to another person, for a certain period of time and when there is a counter-presentation. That is exactly the case here. Therefore, it is absolutely advisable to have a lease agreement or a use agreement drawn up, and given the risks involved in using the property, it is recommended that this lease be drawn up by a real estate lawyer.
Actual delivery
It is October 1 at 9:00 in the morning and Buyer Koos and Seller Vincent have agreed to finally hand over the keys. The property is now supposed to be transferred from Vincent to Koos empty and free of use rights. Importantly, the property must be in the same condition during this official “delivery” as it was at the time of purchase (on July 1 that year).
Contractual penalty system
Now at the “actual delivery,” it turns out that seller Vincent neglected the property quite a bit. The kitchen cabinets are damaged, there are burn marks in the carpet, the oven does not work and there is a big puddle of rainwater in the sunroom. There is also a student living in the attic who refuses to leave the house. Because of this regulation, among others, it is very important that you stipulate in the purchase agreement that if the actual delivery is later than the legal delivery, the “contractual penalty clause” still applies. Briefly, this regulation means that the seller must pay a 10% penalty to the buyer the moment he fails to deliver the home as agreed in the purchase agreement. Fortunately, in this example, Koos and Vincent have arranged that the contractual penalty rule also applies to this later actual delivery.
Therefore, buyer Koos can now give seller Vincent notice of default and require him to restore the property to the condition it was in at the time of purchase (i.e., without all these defects) and to deliver the property empty and free of tenants or users. If the seller fails to do so within 8 days, the purchase agreement requires the seller to pay the buyer a penalty of 10% of the purchase price.
Amount held on deposit
The moment the seller of the home does not deliver properly, but the full purchase price has already been paid to him, it becomes an expensive and difficult process to recover the damages you have. Therefore, the moment you agree at the time of purchase that the seller may continue to use or rent the property for a certain period of time, you would be very wise to have some ‘leverage’. You can arrange this by agreeing in the purchase agreement that upon legal delivery only, for example, 80% of the purchase price will be paid by the notary and the remaining 20% will be paid after the actual delivery takes place. You would therefore be wise to ensure that the rent or user fee agreed upon that the seller pays to the buyer/new owner is deducted from this deposit amount or may be deducted. With this, you as the new owner are better covered for if the seller who continues to use the property does not pay the agreed-upon usage fee (=rent).
If you are going to agree this way, the urgent advice is to have the purchase agreement drawn up watertight by a well-regarded notary office. Of course, as real estate agents, we also make purchase agreements, but we are not lawyers. A good notary office has sufficient legal knowledge to better put such agreements on paper in legal terms.
Our advice
First of all, we say: really, prefer not to do it. There are really many snags in a construction where the old owner continues to use/rent the property for a while. If you do choose to do it, make sure:
-you have all agreements transparently recorded in the purchase agreement
-you have written permission from the lender
-the old owner keeps the house insured and you also take out buildings insurance, informing them that the house is temporarily occupied by someone else
-not the full purchase price is paid upon legal delivery. Make sure the purchase agreement provides that, for example, 20% of the purchase price remains on deposit with the notary until the house is actually delivered correctly.
-you agree, that the fee (rent) that the old owner will pay, in case of default, may be deducted from this amount on deposit with the notary
-the contractual penalty clause in the purchase agreement applies to both legal and actual delivery.
-the purchase agreement clearly states that the old owner continues to have a maintenance obligation
-there is a good fixed-term lease agreement drawn up in which you can with complete certainty get the old owner who is going to rent out of the property.
-And last but not least: you have all these legal documents prepared by a specialized lawyer. That could be a well-regarded notary office, or a good law firm. If we have to do this kind of thing, we have Van de Sande Advocaten (highly recommended!) draw it up.
Disclaimer: Multiple sources were used to arrive at the content of this article, but the author cannot guarantee the complete accuracy of the information cited. Use of the information contained in this article is therefore entirely at your own risk and the author shall not be liable for any damages arising from such use.