Lease Purchase Agreement

 

A lease purchase agreement is typically used when you have a buyer for your property but they need some time before they meet the requirements to qualify for a new mortgage.

However, it may be used in any situation where the seller needs to rent the property to the buyer for a period of time before closing.

 

Common Questions

Is This The Same As a Lease With Option To Purchase?

No.  While the terms are often used interchangeably and the agreements are similar in nature, a lease option is typically used when a tenant wants the option (but not the obligation) to purchase the property they are renting.

A lease purchase is the standard form-of-choice when you have a buyer that is serious about purchasing the property but is not immediately ready and/or able to close.

Sellers can usually demand a larger non-refundable deposit with a lease purchase than they can with a lease option, since the ultimate intent of the buyer is to purchase the property; not to be a tenant.

Is This The Same As an Installment Land Contract?

No.  An Installment Land Contract (also known as a Contract for Deed or Bond for Title) is a form of owner financing, where the buyer actually has equitable title in the property. This type of transaction is traditionally used when the seller wants to act as the bank and receive monthly payments for as long as possible.

How Long Does The Buyer Have To Close On The Purchase?

Just like the purchase price and monthly rental amount, this is one of the terms on the contract the two parties must agree on while negotiating. If the buyer simply needs to complete the sale of their previous property before purchasing this one, the contract could be as short as a few months. The lease purchase agreement does allow for a one-time extension of the closing date under certain terms and conditions. If the purchaser needs to clear up some credit issues, the buyer and the seller may agree to 12 months with a possible 12 month extension.

Does The Buyer Get Any “Rent Credit”?

For each monthly rental payment that is made in full before the due date, a rent credit/purchase credit will be applied toward the purchase price. The parties can agree to anything from zero dollars ($0.00) per month to 100% of the monthly rental payments. The amount of the rent credit is completely negotiable and accumulates only during the term of the initial contract, not during any extension. Accordingly, over a 12 month contract, a rent credit of $100 per month would be a $1,200 reduction in the purchase price.

Since sellers offering a lease purchase are typically able to demand a purchase price and monthly lease payment on the upper side of the price scale, this is usually a negligible reduction.

It is also common for a seller offering a lease purchase to be able to negotiate a contract where the buyer will be paying most (if not all) of the closing cost.

What Happens If The Buyer Does Not Purchase The Property?

In most situations they would probably be in default-of-contract and you could sue them for breach-of-contract. However, this is usually not practical. In such case, the seller shall retain all earnest monies/purchase deposits, credits, and any improvements to the property as liquidated damages and not as a penalty.
 

 


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Lease Purchase Agreement

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