Rent to Own – Part 1

Home prices are down, seller’s are motivated, deals seem to be everywhere, but you are not a cash buyer, and your credit has been knocked down like many who have been struggling and over burdened with debt over the last several years.  Purchasing a home outright is not a viable option, and most likely the home you are looking at is encumbered by a mortgage, so simple seller financing is not an option.  Other structures such as a wraparound mortgage, and creative structuring through the use of trusts and other vehicles (both of which I will get into in alater post) might work, but you need somthing simple to get the deal done.

A lease-purchase may be the way to make it happen.  There are a number of ways to complete a lease purchase transaction, the most common include:

1. Lease With Right of First Refusal.  Entering into a standard rental agreement with language in the agreement providing the tenant with a right of first refusal in the event the landlord ever sells.

2. Lease with the Option to Buy at Market Value.  Entering into a standard rental agreement with language in the agreement providing the tenant with the right to purchase at some point in the future at a market value price.

3. Lease With the Option to Buy at a Fixed Price.  Entering into a standard rental agreement with language in the agreement providing the tenant with the right to purchase at some point in the future at a set price.

With all of these rent to own arrangements, the intent among the landlord-seller and tenant-purchaser, is to get the buyer in the house now, and to sell later.  Every lease option is different, and every lease purchase transaction is rife with issues that need to be considered.  I will expand upon each of these rent to own structures in later posts, and I will review the most common issues and pitfalls with each and how each can be resolved without undue exposure to the landlord or tenant.

How should the monthly rent differ on a lease option as opposed to a regular lease?

Should there be an option deposit?  If so, how much?

Should the deposit be non-refundable?  If so, under what circumstances?

How long should the option remain open to the tenant?

These are all important questions to consider before having your attorney draw up a lease purchase agreement, and well before money changes hands or posession to the property is given.

I look forward to expanding on these and other points in future posts.

James E. Clark is a New York real estate attorney.  For more information on the process of selling or purchasing through a rent to own or lease purchase agreement or other options please visit our website at https://www.clarkslaws.com, call my office at 631-539-8889 during regular business hours or feel free to e-mail me at jclark@clarkslaws.com.

Legal disclaimer: IMPORTANT LEGAL NOTICE: This post is not legal advice does not create an attorney-client relationship.  This and all posts on this website are intended as general information, and are provided for educational purposes of the public, not any specific individual. If you would like to obtain specific legal advice about this issue, please contact an attorney in your state. Mr. Clark is licensed to practice law in New York.