Rent back article
A common occurrence when a home is sold is the buyer allowing the seller to reside in the home for a period of time prior to the buyer taking possession. Many refer to this arrangement as a “rent back”. While this is a common occurrence, this practice can become quite confusing when considering the liability aspects of this arrangement. Specifically, who is responsible for losses to the home, the buyer and/or sellers contents and the personal liability for both parties?
The first place to always begin with issues of this nature is reviewing any pertinent laws. Most, if not all, purchase agreements adhere to the “Uniform Vendor and Purchaser Risk Act”. The act states that the risk of loss transfers to the vendee (buyer) when either title or possession passes. In the rent back situation title has transferred, therefore the responsibility of covering the home itself clearly rests on the buyer. What then are their exposures when they rent the property back to the seller?
The buyer will want the seller/occupant to sign a rental agreement clearly stating, among other things, that the renter is responsible for insuring their own contents and personal liability. The buyer should also require the renter to add the buyer as an additional insured to the renter’s HO-6 (renter’s policy) policy. The reason for doing this is to ensure that the buyer is covered for liability claims caused by the renter without having to use their own policy.
In addition to the above, the buyer needs to confirm that their homeowner’s insurance carrier is advised that the home is being rented out for a period of time prior to the buyer occupying the home.
Finally, the buyer should also confirm with their homeowner’s insurance carrier that any contents (typically all items that are not nailed, tacked or glued down) the buyer may have in the home, are covered during the rental period.