Lease Option to Buy Agreements

Due to the decline of the real estate market and the tightening of mortgage loan requirements, rent to own agreements have become very popular. Lease to own agreements offer sellers a means of generating income on their property and avoiding foreclosure. These agreements offer buyers who are credit challenged an opportunity to become homeowners. Before entering into a rent to own agreement, it's important to understand what it is and how it can effect you.

How Does a Lease Option to Buy Agreement Work?

A lease purchase agreement is an option to purchase the property within a specified period of time. It is, in essence, a two part agreement. The first part of the agreement gives the tenant the right to occupy the property for a specific period of time in exchange for making month to month lease rental payments. The second part of the the agreement gives the tenant the right to purchase the property for an agreed upon price by a certain date.

The typical lease purchase agreement gives the tenant the right to occupy the property for between one and three years as long as the tenant pays rent and complies with the other terms of the lease agreement. Such an agreement also indicates that a portion of the lease or rental payments will be applied toward the purchase price of the property.

Risks With Lease Buy Options

Although the terms lease purchase agreement, option agreement, and lease with purchase option are used interchangeably, there are subtle differences between these types of agreements. Contact an experienced real estate attorney in your area to get a full understanding of what type of agreement you're signing and what its legal ramifications are.

Regardless of the type of agreement you may be entering into, there are a number of risks that you should be aware of before signing. The following is a list of the most common risks:

  • The down payment, if one is required, may be nonrefundable;
  • The monthly payments are usually nonrefundable;
  • The tenant may lose his financial investment if the landlord's mortgage company forecloses;
  • The tenant may be evicted if the landlord's mortgage company forecloses;
  • The tenant may lose his financial investment if he is unable to qualify for a mortgage before the expiration of the option period;
  • The property may be worth less than the agreed upon sales price by the time the tenant exercises the option to purchase; and
  • A dishonest landlord may attempt to wrongfully evict the tenant.

More Info: Buy Commercial Property

As you can see, several of these risk factors are completely beyond the tenant's control. Therefore, it's crucial to have the rent to own or lease purchase agreement reviewed by an attorney before you sign it. If, after having an attorney review the agreement, you are unable to negotiate terms that offer you a degree of protection from some of these risks, it's probably best not to sign the agreement.

Fighting a Wrongful Eviction

One of the biggest dangers of a rent to own or lease purchase agreement is a wrongful eviction by a dishonest landlord. Unfortunately, many landlords “sell” the same property over and over again. If you believe your landlord is attempting to scam you out of the property, contact an experienced landlord-tenant or real estate attorney who is willing to review your lease and advise you on your rights and possible courses of action.

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