Lease Option Vs Lease Purchase: Understand the Differences

One of the most common mistakes that sellers and buyers make while dealing with the sale and purchase of property is using the terms Lease Option and Lease Purchase interchangeably. A good real estate lawyer will tell you that into the details of both the terms, it is important that you first understand that both terms are fundamentally different and what each one holds for you as a seller or a buyer.

Both Lease Option and Lease Purchase allow a potential buyer to occupy the property for a period before closing the deal. The good news is that these options assist either or both of the parties involved in understanding if their expectations and requirements are being met through the deal. You would be surprised to know that these agreements also allow a buyer to sometimes build a bit of equity in the property. If you are thinking of leasing out your property under the Lease Option or Lease Purchase agreement, connect with an experienced real estate lawyer. If are trying to find a trustworthy lawyer, look up online for ‘real estate lawyers near me’ to find professionals in and around your area.

Lease Option Vs Lease Purchase

But before you delve into the technicalitie, here are both terms – Lease Options and Lease Purchases explained in detail for you.

Lease Option Purchase Agreements

A lease option purchase agreement consists of two agreements – a residential lease that lays down the tenant-buyer’s lease for the property for a specified period of time and a contract for sale which obligates both parties – seller and tenant – to the typical terms of a residential purchase agreement on the expiry of the lease term. The Lease Option allows a buyer to purchase to purchase the property from the landlord. However, unlike the Lease Purchase Agreement does not mandate the tenant to purchase the property. But it does obligate the seller to sell the property if and when the tenant exercises the option to purchase, properly.

Through this agreement, tenants enter an Option Agreement, which gives them the right to complete the sale at an agreed price either during the lease term or any other specified term – which is also called the Option period, for exchange of a fee called the Option Fee.

This fee is often confused with the deposit on a contract for sale, as a result several people mix up both the Lease Option and Lease Purchase terms. This Option Fee is usually refundable. Under the Lease Option, cross default provisions are also available. If and when the tenant decides to exercise his option to purchase the property, the Option Fee is credited to the purchase price. There could always be the possibility of additional deposit amounts as the parties close the contract for sale.

Clearly, these are technical and legal terms, and it is not an easy task to navigate them alone. A quick Google search on ‘real estate attorneys near me’ can help you find the perfect legal support in your area.

Lease Purchase Agreement

Similar to the Lease Option, the Lease Purchase agreement also consists of two agreements. This agreement also provides for cross-default provisions which ensures that if there is a breach of contract of one of the agreements, there is an automatic breach of the other contract. However, this agreement mandates the tenant to purchase the property as the tenant-buyer, it mandates the tenant to be responsible for the maintenance and repairs of the property. This usually rests with the landlord.

If you have more queries and want a deeper understanding of both the terms and their implications, you can reach out to real estate lawyers in your area and consult them for advice.

Landlord-Tenant Relationship

Both agreements create landlord-tenant relationships. If the tenant defaults, the landlord can evict him like a normal tenant. If at all there is a dispute, in case of a tenant-option or tenant-buyer can raise an equitable interest claim. Usually such a move is not successful, but the tenant can assert ownership interest in the property. In such a case, the seller may retain the title to the property as security till the balance is paid by the buyer.

Things to Consider Before Entering into Such Agreements

Here are a few things that a seller/landlord must keep in mind before signing Lease Purchase or Lease Option agreements

  1. Ensure that the Lease Purchase or Lease Option structure does not resemble a contract for deed
  2. Keep the lease term for a short period of time – about a year or even less, if possible
  3. Landlords can ask for security deposit
  4. Avoid giving large rent credits
  5. Avoid using terms such as seller, buyer or credit in the agreements
  6. Understand clearly if the tenant-buyer/option will be making substantial changes to the property
  7. Understand, clearly, the Option price and the market value

These are a few tips to avoid a potential equitable interest claim from a tenant. If you want to know more, you can get in touch with technical experts from Hale Law – the most trusted real estate lawyers in Cape Coral.

Let Us Help You Navigate Legalities in Real Estate

Hale Law is a premier real estate attorney law firm. Our experienced real estate lawyers can assist buyers and sellers through the legal process for the transfer of ownership of property, provide legal assistance with real estate matters, wills, trusts, probate avoidance, etc. For more information, you can call us at (239) 931-6767 or write to ned@halelawservices.com.

Also Read: Lease/Options to Purchase Florida Real Estate

By |2022-07-08T06:27:21-04:00July 8th, 2022|Real Estate Law|0 Comments

Leave A Comment