Previously we wrote about what can go wrong on Settlement Day and how to possibly avoid any settlement problems that could lead to delays. Following on from this, we’ll explain what Vendors and Purchasers can agree upon in the event of a delayed settlement. Specifically, a Licence to Occupy and Licence to Store.
If settlement is delayed, the Vendor and Purchaser may enter a Licence agreement. This agreement may allow the Purchaser to move into the property before settlement or to store their belongings there. Typically, the Conveyancer drafts such an agreement. Once signed by both parties and all checks are in place regarding the insurance and signed Client Authorisation, the keys can be handed over with relative confidence.
Licence to Occupy
In some instances, the Vendor might be quite fine with the Purchaser moving in before settlement. In these instances, it’s wise for both parties to enter into a Licence to Occupy agreement. The agreement may allow the Purchaser to live in the property at no cost, but if it’s for an extended period of time the Vendor will no doubt require a weekly rental fee.
This Licence to Occupy allows the Purchaser to move into the property, just as if it were settlement day. But, they must accept the property as is. If anything breaks (i.e. hot water system, air conditioner, alarm system) the Vendor is under no obligation to repair. The Purchaser also can’t make any modifications to the property (no re-modelling, no garden upheaval, no painting, etc). That is, not until settlement.
Licence to Store
If it’s a Licence to Store, the Vendor will have agreed to allow the Purchaser to store their belongings in the property until settlement. Most likely in the garage only, and the only access the Purchaser will have is to that area. If access is provided to the whole house, the contract will likely require the Purchaser to return the key to the Agent by a certain time.
This scenario often arises when the Purchaser needs to vacate their current dwelling before settlement. Or, settlement is delayed, but the Vendor prefers the Purchaser not to occupy the house until settlement is completed.
Who’s at risk?
Any Licence to Occupy worth its salt will have some tight clauses in it that protect the Vendor. The ultimate clause being the right to evict the Purchaser with 48 hours’ notice if anything goes wrong.
If the Purchaser or their bank causes a delay in settlement, it’s unlikely that the Vendor will agree to a Licence to Occupy. If the Vendor or their bank is responsible for the delay, a Licence to Occupy can be easier to negotiate. There’s no hard and fast rule though.
Every scenario is unique. For example, if the Vendor is selling and buying on the same day and needs their sale to go through so that they can move into their new property. They’re not in a position to grant a Licence to Occupy. If they do, they won’t have anywhere to stay.
If there’s a secure garage where belongings can be stored, a Licence to Store is the most likely outcome and is certainly the safest option. In most cases, Purchasers can find accommodation for themselves and their family for a few nights. But, storing a whole house worth of belongings can be challenging.
Reducing the risks.
Regardless of the type of Licence, there are risks. Mainly for the Vendor. As always, the smartest thing to do is speak to your Conveyancer straight away, before anyone does or agrees to anything. As a Vendor, it’s imperative that you ensure the Purchaser has taken out insurance cover on the property. A good Conveyancer will make sure this occurs.
Your Agent will no doubt have a bit to say about this as well. Some Agents have seen such arrangements go poorly in the past. This could lead to them trying to protect you by advising against it. Again though, your Conveyancer is also there to offer advice.
This article here also has some good advice, but for the best advice on a Licence to Occupy or a Licence to Store for your specific situation, contact us on 08 8261 5092 or by emailing us here.