DEFINITION of Use and Occupancy (U&O)
Use and occupancy (U&O) refers to a type of permit required by some local governments whenever real property is transferred. Usually, U&O regulations require the property seller to pay a fee of around $100 and allow a government official to inspect the property. The inspection's purpose is to ensure that the property complies with local housing codes and ordinances and that all the necessary permits have been filed. It is also referred to as a "resale inspection," an "occupancy permit" and a "U&O certificate."
BREAKING DOWN Use and Occupancy (U&O)
The U&O inspection must be completed within a limited timeframe such as 30 days prior to closing and a U&O certificate may only be valid for a limited time such as 90 days.
In localities with no U&O requirement, buyers and sellers can make their own determinations about the condition in which they are willing to buy and sell the property and the transaction can proceed more quickly and smoothly. The buyer may purchase a private home inspection and may ask the seller to make repairs as a condition of closing the deal. The seller is free to agree to make the repairs, to negotiate for the buyer to perform a portion of the repairs or to walk away from the transaction. When local government is involved the seller is forced to spend time and money to fix anything the government deems necessary without regard to the prospective buyer's requirements.
How Use and Occupancy Agreements Allow for Temporary Use of Real Estate
Use and occupancy agreements between buyers and sellers of property can be used to cover unexpected changes to the move-in date and use of real estate. A U&O agreement could have terms that grant the buyer of a property early access to move furniture and belongings to the premises. The buyer would still have to wait until the official occupancy date before they could take full possession of the property. This may be necessary if the buyer has already closed on the sale of their prior property and must move.
The seller of a property might also run into issues closing the transaction and moving on to their new property. They could be left between the two properties without a place they could full occupy as an owner. A use and occupancy agreement could allow the new owner who purchased the property the right to give permission to the seller to remain on the premises for some additional time while the issues are resolved.
The terms of a U&O agreement will likely set strict time limits on how long the buyer or seller might use or temporarily take up occupancy on the property. The agreement could also set guidelines that would allow the current owner to remove a temporary occupant if necessary.