Leasing with the Option to Purchase

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Real Estate

Of the many ways of selling and purchasing property, leasing with an option to purchase is one of the most creative in home financing.

Leasing with an option to purchase is when an agreement between the tenant and landlord is signed stating that the tenant can purchase the property under specified terms at the end of the lease period.  The owner is obligated to sell at these terms, but the tenant is NOT obligated to purchase.  The tenant can purchase at the agreed upon terms only if the landlord exercises the option.  A common misconception is that once a landlord signs this type of agreement, he has to sell the property to the tenant, or that the tenant feels he has an absolute right to the property - NOT SO!

Purchase price is set out in the original lease option agreement.  The purchase price is set according to the market value at the time.  Also, within the agreement are the terms, such as down-payment and any security deposits as well as a percentage of the rent to be credited at the time of purchase.

A unique feature of the lease option is the rent credit.  The tenant will usually pay above-market rent for the property.  A non-refundable portion, called the rent credit, is credited toward the purchase price if the buyer decides to exercise the purchase option.

The lease agreement should also have a clause that would terminate the option if the tenant is in any way violating the terms of the lease or is evicted before closing the agreement to purchase.

An option to purchase does not give the tenant legal title to the property.  The tenant becomes a purchaser only upon exercising the option.