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Lease with Option to Purchase

A Lease with the Option to Purchase (sometimes called a Lease Option Agreement or an Option to Purchase Agreement) can be an attractive option for renters who do not have the ability to purchase a... Read more

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Making a Lease with Option to Purchase

  • What is a Lease with the Option to Purchase?

    A Lease with the Option to Purchase (sometimes called a Lease Option Agreement or an Option to Purchase Agreement) can be an attractive option for renters who do not have the ability to purchase a home with a typical mortgage. In some cases, the difficulty is due to less than perfect credit or the need for a large down payment. Lease Option Agreements may also be a favorable option for landlords who are struggling to find renters or buyers for a specific property.

    When drafted correctly, this legal contract may reduce the volume of disputes that might arise. You can tap or click on the "Make document" button to check out the sample Lease Option Agreement and see what information you'll need to provide to build your document.

  • What is the difference between Lease Option and Lease Purchase?

    With a Lease Option, the tenant has the optional right to purchase the property, however with a Lease Purchase, the tenant usually agrees to purchase the property as part of the terms of the contract.

  • Is a Lease to Purchase a good idea?

    A Lease to Purchase can be a good option for renters who face obstacles to buying property, but in most situations, most of the advantages are on the seller's side. However, there are still some advantages for the potential home buyer.

    Advantages for the seller:

    In a down market, it can be a good opportunity to increase cash flow from leasing a property that was otherwise vacant or difficult to sell or rent. Most lease agreements are long-term, and the rental rate is often higher than average, so this can be an advantageous arrangement for property owners.

    Advantages for the buyer:

    It can give the buyer a couple of years to work on improving their credit and increasing their down payment leverage. If the Lease Option to Purchase Agreement includes the selling price of the house, the price is locked in even if the market improves.

    Disadvantages for the seller:

    You can't sell the house if the market improves and you are still within the terms of the lease agreement. If the contract includes the sales price, you cannot raise the price. If the buyer backs out and doesn't improve their credit, you are left with a vacant rental.

    Disadvantages for the buyer:

    If your credit score doesn't improve, you could lose the option fee and the years of extra rent paid. Alternatively, something may happen that is out of your control which could affect your ability to buy, such as job loss or a serious illness.

    In addition to these factors, there are other things that can go wrong with Lease Option Agreements. To protect your interests, here are a few potential issues that you should be aware of:

    • Property owner doesn't pay their mortgage or taxes and could lose the property.
    • Renter doesn't maintain the property well.
    • Eager buyers get duped by a lease-to-purchase scam.
    • While living in the property, renter finds flaws in the home that make them want to back out.
    • Contract is terminated if rent is paid late and the renters lose their investment.
    • Sellers might try to sabotage the agreement, so they can sell their property for a higher amount.

    Lease with Option to Purchase Agreements should be carefully reviewed before signing. They are expensive, long-term agreements, so it warrants diligent review. If everything goes well, renters can build their credit while the seller can benefit from two or three years of rental income during the lease period. At the end of the contract, in a best-case scenario, the seller sells a hard-to-sell property and the new owners get to enjoy the benefits of homeownership. If you are considering entering into a lease-option arrangement, it is important to talk to a lawyer.

  • What is included in a Lease with Option to Buy Agreement?

    A Lease Option Contract includes everything that a regular lease does plus information related to purchasing the property. Here are a few of the additional details that it may contain:

    Option fee - This fee is usually one to five percent of the price of the home. In most contracts, this fee is to reserve the "option" to buy the property and may go towards the down payment or equity.

    Additional rent - Most contracts set the rent rate two or three hundred dollars higher per month than the going rate. So, if a home usually rents for $1200 per month, the rent might be set at $1500. The extra $300 is put towards the down payment or treated as "equity" and taken off the price of the home.

    Termination - This portion of the contract is extremely important for both parties. It details how a renter might violate their lease, how a renter can quit the lease, and what the landlord's obligations are in such circumstances.

    Home sale price - Some sellers and buyers agree on what the sale price will be when making the agreement. It could be current market value or the projected value. Some choose not to set the price until the time the actual purchase is to take place.

    Your contract will also contain the typical legal language around smoking, late fees, invited guests, animals, and property damage. As you make your Lease Option Contract, you also will have the ability to add information about maintenance procedures, furnishings, and insurance requirements. Further modifications are allowed, as necessary.

  • Will this Lease Option Agreement be legally binding under state law?

    As with any contract, a Lease Option Agreement is not legally binding until it is signed by all parties. This customized document from Rocket Lawyer can offer much more protection than a Lease Purchase Agreement template or blank PDF file that you might come across elsewhere. As a Rocket Lawyer member, you will have the option to activate Document Defense® for your lease, which allows a lawyer to help you get paid or enforce your rights.

  • How do you do a Lease to Purchase Agreement?

    The good news is that you don't need to reinvent the wheel to get your contract in writing. When using the document tools on Rocket Lawyer, you are able to make Lease Purchase Agreements with relative ease. Your document will be constructed piece by piece, so you can be sure that it contains all of the appropriate information that you'll need. Ordinarily, given the level of customization, you might ultimately pay a traditional law firm fees in the hundreds of dollars, if not more.

  • Am I required to do anything else once my Option to Purchase Agreement has been made?

    Once you've completed your custom contract using Rocket Lawyer, you can get to it in your account wherever and whenever you choose. You should feel free to take any of the following actions related to your contract: editing it, signing it electronically with RocketSign®, printing it out, and downloading it in PDF format or as a Word file. Each Lease Purchase Agreement comes with its own set of suggested actions to take once your document is completed. You should ensure that all signers receive a copy of the fully executed contract. You may also wish to explore our larger selection of contracts and other documents for property owners and managers.

  • How will property rental laws affect my Lease Option Agreement?

    Laws are continually evolving and they vary from city to city. If you have any questions about local rental laws, you can connect with an attorney today. The answer may depend on whom you ask, but often some lawyers will not even agree to review rental contracts that they did not draft. A better approach might be to request help from Rocket Lawyer attorney services. When you sign up for a Premium membership, you will be able to ask for feedback from an experienced attorney or get answers to other legal questions about your Lease Option Agreement. As always, Rocket Lawyer is here for you.

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