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
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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