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Lease-Purchase Contracts

A lease-purchase agreement — also colloquially referred to as a “rent-to-own” contract — is where a tenant enters into an agreement with the landlord for a set term. Generally, the lease contract states that so long as the normal payments are made, a percentage of those payments will act as a credit toward the purchase price of the home for the tenant at the end of the leasehold estate.

These arrangements have become quite popular, particularly because many individuals are reluctant to enter into a real estate purchase agreement given the volatility of housing prices. As an alternative, a lease-purchase agreement is viewed as a safe way to ensure you have a roof over your head without losing equity in your home.

The drafting and construction of these agreements is a delicate process. For one, the lease provisions necessarily create a landlord-tenant relationship, thereby triggering a whole host of legal duties and responsibilities (See: Breach of Lease). Further, careful construction of the option and lease needs to take place to ensure that the lease and option to purchase are congruent and lawful (e.g., there must be separate, distinct consideration to hold the option open). Lastly, like with all real estate purchase contracts, large amounts of liability and due diligence need to be completed (See: Real Estate Contracts: Seller’s Disclosure Statement).

Whether you are an individual selling land or purchasing/renting land, be hesitant of the blank standard form contracts. A lease-purchase contract needs to be tailored specifically to the needs of the situation at hand.

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