Does the buyer have to pay rent if the contract is terminated before the Commencement Date?

QUESTION: The buyer in one of my transactions requested permission to paint the home prior to closing. My seller agreed since the property is vacant, and both parties executed a Buyer Possession Before Closing Agreement (Form 2A7-T) to cover the week before closing. I just heard from the buyer’s agent this morning, however, and the buyer has decided to terminate since we are still in the Due Diligence Period and the rental term is still a week away. I asked the buyer’s agent when the buyer intends to pay the agreed upon rent, and the buyer is refusing. Does the buyer have to pay rent?

ANSWER: No. Form 2A7-T provides that rent is due prior to the “Commencement Date,” which is a date agreed to by the parties in paragraph 1 of the form. That same paragraph further says that the Buyer Possession Before Closing Agreement shall terminate at the earlier of closing or termination of the contract. In your case, since the contract was terminated before the Commencement Date, the buyer does not have to pay rent.

On a separate note, although the use of Form 2A7-T is strongly encouraged any time the buyer wants to take possession prior to closing, it is not a good fit when the buyer just wants access to make changes to the property before they move-in. This is in part because paragraph 3 of the Buyer Possession Before Closing Agreement provides that the buyer “shall not alter, modify, or damage the Property, or fail to maintain the Property in its same condition as of the Commencement Date, and shall make no changes in the Property, decorating or otherwise, without the written consent of Seller.”

In the future, if you have a buyer who wants to make improvements or repairs to the property before possession, you should recommend the parties consult with counsel. This will ensure that the parties will have an appropriate addendum setting forth their rights and protecting the parties in the event the transaction does not close.

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