Understanding the Buyer’s Temporary Residential Lease in Texas

The new home is a perfect fit for you; it’s close to work, the kids’ school, and your extended family. You’re understandably excited.

But the only problem is that the closing date is so far out, and you’re going to be homeless until then. That leaves you with two options: stay at a hotel or find someplace else to rent on short notice. Neither option looks particularly promising – hotels are expensive, and other available homes don’t feel like home…at least not yet!

Luckily, you’ve heard about temporary residential leases, and they seem like an ideal solution for your situation!

There are two types of temporary leases in Texas – the seller’s temporary residential lease and the buyer’s. We’re going to dive into the latter in this article.

What is a Buyer’s Temporary Residential Lease?

Page 1 of the Buyer's Temporary Residential Lease

A buyer’s temporary residential lease is a contract between the seller and the buyer of a home that authorizes the buyer to stay in the property for a set period (no more than 90 days) before closing.

What’s the mean?

It means, as a buyer, you can negotiate a place to stay until you close on the home and own it.

For the seller, it means your place might not need to remain vacant (if it is) as you’re waiting to close.

Of course, this might not work out in every situation.

Under what circumstances would a buyer use this type of lease?

Someone will need a temporary lease if they’ve sold their previous home and still waiting to close on their new home.

While most buyers would attempt to schedule the closing date of their previous home to coincide with the closing of their new home (or as close as possible), this isn’t always the case.

For example, let’s say the buyer received an all-cash offer on their current home. This typically comes with a relatively fast closing. In that case, they might be homeless for a bit longer than expected until they can close on their new home. A temporary lease would be ideal in this situation.

However, if the home is not vacant, it’s currently being renovated, or it’s under construction, this might not be a viable option.

How does it work?

As with anything in real estate, everything is negotiable in the contract. The temporary lease is negotiable as well.

Typically, the buyer makes the offer with the original contract. However, the lease can go into effect at any point during the process.

The buyer lays out the terms, such as the start of the lease and cost per day on TREC form # 16-5. The seller then decides to accept the terms, counter the offer with their terms, or decline the proposal altogether. The market and the seller’s situation determine if moving in a bit early will work out.

Benefits of the buyer’s temporary residential lease.

This lease can potentially benefit both the buyer and the seller.

For the buyer, they get temporary housing to rent until they’re own their new home. This eliminates the need to find a place to stay, such as an Airbnb or hotel. Best of all, they can start to call it home.

On the other hand, the seller can bring in some additional money by not having the house sit unoccupied. Since they’re still paying the mortgage on the home until closing, this could be a great option to offset some of the costs of a vacant house.

Sure, both parties have to work out the timing and terms, but it doesn’t come without risk.

Be cautious; sometimes, it doesn’t work out.

While there are plenty of benefits to be had, approach these with a bit of caution.

If the deal falls through, so does the lease.

When this happens, the buyer has to move out and find another place to live. It’s a total hassle. What’s more, they may also lose their deposit. Depending on why the lease terminates, the buyer may also lose their earnest money. But more on terminations later.

The seller feels some pain as well. They must then prepare the house to list it again and go through the selling process from the start. This is another month or two of paying a mortgage on an empty home.

With that, please take a look at all possibilities before going through with the lease and make sure it’s a good fit in your situation.

When does the lease terminate?

Per paragraph 18 of the standard contract, the lease terminates once any one of four conditions is met-

  1. Closing occurs, and the funds are transferred to the seller or seller’s lender.
  2. Before closing, either party terminates the contract.
  3. The Tenant has defaulted on their lease and violates the terms.
  4. The Tenant has defaulted under the terms of their contract.

Once the lease is terminated, the Tenant is evicted and must vacate the property immediately. The deposit may be used to fulfill the Tenant’s duties under the lease.

Not quite the traditional lease.

With a traditional lease, whereas the Tenant pays the landlord an amount to stay in their property and maintains the property to a livable standard, the Tenant is responsible for all repairs with the temporary lease.

The lease form clearly lays out who is responsible for repairs-

Except as otherwise provided in this Lease, Tenant shall bear all expense of repairing, replacing, and maintaining the property, including but not limited to the yard, trees, shrubs, and all equipment and appliances, unless otherwise required by the Texas Property Code. Tenant shall promptly repair at Tenant’s expense any damage to the property caused directly or indirectly by any act or omission of the Tenant or any person other than the Landlord, Landlord’s agents, or invitees.

TREC Form No 16-5

As we said before, everything is negotiable. But, by default, the Tenant is responsible for the general maintenance of the property.

This makes complete sense as the Tenant will soon be the homeowner, so taking on the responsibilities of homeownership will only be the next logical step.

At this point, you should be informed enough to move forward with your buyer’s lease. Work with your real estate agent to determine if a buyer’s temporary residential lease is right for you. If it is, discuss some options with them on negotiating terms that work best for you.

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