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Rent to Own Agreement Basics

Reviewed by Rocket Lawyer On Call Attorney  Malini Ganvir, Esq

You found the perfect house but you can't quite afford to buy it just yet - so you lease the property with an option to purchase. Or maybe you're trying to sell your home in a down market. A Rent to Own Agreement, also known as a Lease with Option to Purchase, is a flexible option for both buyers and sellers.

Use the Rent to Own Agreement document if:

  • You own a property that will be leased to a tenant.
  • You want to lease a dwelling unit and you are interested in selling the property to the tenant if he/she is interested.

If it's not quite the right time to buy or sell property, but you're close and just need a little time, a Rent to Own Agreement is a great option. An Agreement provides a chance for a tenant to buy the property they're renting before the lease ends. And it's attractive to a seller who can't find a buyer right away. A Rent to Own Agreement works for a buyer who may need some time to come up with a down payment or repair their credit history. A Rent to Own Agreement is set up like a standard lease agreement, with details about the relationship such as rent amount, rent due date, and who is responsible for utilities. The Agreement also describes in advance the purchase price of the home, how long the option to purchase is open, and what percentage of the rent will be applied to the down payment of the property.

Other names for this document: Rent to Own Lease Agreement, Rent to Own Agreement Form, Rent to Own Contract

How Does a Rent to Own Agreement Work?
At its heart, a rent to own agreement is a standard rental agreement packaged with an option to purchase—typically called an option contract. The practical result is that the renter will agree to rent the property for a predetermined amount of time after which, they will have the option to purchase the home. If they do decide to purchase, a portion of the previously paid rent may be put towards the total cost of the house.

What Happens if the Buyer Chooses Not to Purchase the Home?
If the renter elects not to buy the property it will effectively end the rental contract. Aside from this, the renter would likely lose the money paid for the option contract as well as any rent money that would have been put towards the purchase of the property. In brief, the renter will likely forfeit any equity they had been building towards. For this reason, it's best to carefully consider any such agreements before entering into a contract.

What Should I look for in a Rent to Own Agreement?
Rent to own contracts can vary greatly, but there are certain terms that you should pay careful attention to:

• The option contract: how long will the renter have to decide on the purchase? If you're the renter, what will the option contract cost you and will any amount be refunded if you decide not to purchase the home? Critically, is the option contract worded correctly? Be absolutely sure the contract states that you have a choice to buy the property, not an obligation.

• How much of the rent, if any, will be applied to the price of the home? This is one the attractive parts of a rent to own agreement, make sure the terms don't undercut the benefit.

• Cost of buying the property: depending on the agreement this can be a predetermined cost or it can be calculated based on market value when the option to purchase is available.

If you every have doubts about a contract, or if you have a pressing legal question, you should strongly consider speaking with a qualified attorney.


Sample Rent to Own Agreement

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Rent to Own Agreement Basics

If it's not quite the right time to buy or sell property, but you're close and just need a little time, a Rent to Own Agreement is a great option. An Agreement provides a chance for a tenant to buy the property they're renting before the lease ends. And it's attractive to a seller who can't find a buyer right away. A Rent to Own Agreement works for a buyer who may need some time to come up with a down payment or repair their credit history. A Rent to Own Agreement is set up like a standard lease agreement, with details about the relationship such as rent amount, rent due date, and who is responsible for utilities. The Agreement also describes in advance the purchase price of the home, how long the option to purchase is open, and what percentage of the rent will be applied to the down payment of the property.

Other names for this document: Rent to Own Lease Agreement, Rent to Own Agreement Form, Rent to Own Contract

How Does a Rent to Own Agreement Work?
At its heart, a rent to own agreement is a standard rental agreement packaged with an option to purchase—typically called an option contract. The practical result is that the renter will agree to rent the property for a predetermined amount of time after which, they will have the option to purchase the home. If they do decide to purchase, a portion of the previously paid rent may be put towards the total cost of the house.

What Happens if the Buyer Chooses Not to Purchase the Home?
If the renter elects not to buy the property it will effectively end the rental contract. Aside from this, the renter would likely lose the money paid for the option contract as well as any rent money that would have been put towards the purchase of the property. In brief, the renter will likely forfeit any equity they had been building towards. For this reason, it's best to carefully consider any such agreements before entering into a contract.

What Should I look for in a Rent to Own Agreement?
Rent to own contracts can vary greatly, but there are certain terms that you should pay careful attention to:

• The option contract: how long will the renter have to decide on the purchase? If you're the renter, what will the option contract cost you and will any amount be refunded if you decide not to purchase the home? Critically, is the option contract worded correctly? Be absolutely sure the contract states that you have a choice to buy the property, not an obligation.

• How much of the rent, if any, will be applied to the price of the home? This is one the attractive parts of a rent to own agreement, make sure the terms don't undercut the benefit.

• Cost of buying the property: depending on the agreement this can be a predetermined cost or it can be calculated based on market value when the option to purchase is available.

If you every have doubts about a contract, or if you have a pressing legal question, you should strongly consider speaking with a qualified attorney.

Use the Rent to Own Agreement document if:
  • You own a property that will be leased to a tenant.
  • You want to lease a dwelling unit and you are interested in selling the property to the tenant if he/she is interested.
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