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A Brief note on Lease purchase contract | by peggyreynolds
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A Brief note on Lease purchase contract

A Lease-Purchase Contract, also known as a Lease Purchase Agreement, is the heart of rent-to-own properties. It combines elements of a traditional rental agreement with an exclusive right of first refusal option for later purchase on the home. It is a shortened name for Lease with Option to Purchase Contract.

The typical contents of a Lease-Purchase Contract

The Option Fee - The initial payment the tenant needs to make. This goes towards the down-payment for the property at the end of the lease.

 

Monthly Payment - How much the tenant will be paying monthly.

 

Rent Credit - How much of the tenant's monthly payment will go to the eventual down-payment of the property at the end of the lease. It is strongly suggested that the tenant establish an escrow account to ensure the security of his or her rent credit.

 

Duration - The timeframe of the Lease-Purchase Agreement. Usually 2–3 years or more.

Property Value - The locked-in sale price of the property. The Tenant-Buyer and Seller usually agree to keep the property value the same despite house market changes.

 

Terms and Rules - This section talks about other details of the Lease such as property taxes, home repairs, homeowner's association fee, etc.

Transaction Structure

n a standard Lease-Purchase Contract, the two parties agree to a lease period during which rent is paid, and the terms of the sale at the end of the lease period, including sale price. Often, the contract is structured in two parts, one representing the lease term and the other a contract of sale. The lease agreement expounds upon what responsibilities the tenant/buyer and landlord/seller undertake during the course of the lease. This contract will also include the option fee and how much of the monthly payment will be credited to the down-payment for the purchase of the home at the end of the lease.

 

At the end of the lease-term, the tenant/buyer has the option to purchase the house. The lump sum accrued from the initial deposit and the rent credit are only released to the buyer as down-payment on the house should the tenant/buyer decide to proceed with the purchase. The tenant/buyer is responsible for securing the necessary mortgage loan to finalize the purchase the home. Programs like Multifamily Leasing Technology can be of good help in this regard.

 

As is usually stated in the lease purchase contract, the option fee and accrued rent credit are both non-refundable should the tenant/buyer decide to walk at the end of the lease. The tenant/buyer is released from responsibility for the sale, and the landlord/seller is responsible for finding new tenants.

 

Should the tenant/buyer be unable to purchase the house due to a lack of financing, the tenant and landlord can agree to extend the option period, convert the lease purchase contract into a traditional rental agreement, or end the contract with the tenant moving out and the landlord seeking other renters or buyers.

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Uploaded on January 30, 2017