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What is a Rent-to-Own Agreement?
A Rent-to-Own Agreement is a lease agreement that adds the option of purchasing the property during the term of the lease. Rent-to-Own Agreements can help to facilitate the sale of a property with a buyer who needs to secure funding.
A Rent-to-Own Agreement includes much of what you'd see in a standard Lease Agreement, such as monthly payments and due dates, grace periods and late fees, property descriptions, tenant's and homeowner's names, and the number of years the lease will last. But a Rent-to-Own Agreement will also include details like the option fee, how much of the rent goes towards the purchase, terms for violating the agreement, and how the purchase price of the property will be determined.
When to use a Rent-to-Own Agreement:
- If you are a property owner looking to enter a Rent-to-Own Agreement with renters who need help preparing to be able to make a purchase.
- You are a property owner willing to sell a property to a renter who has expressed interest.
- If you are a renter who eventually wants to buy a property that is currently for rent or for sale.
- You are a renter preparing the document to share with your landlord.
Sample Rent to Own Agreement
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This (this "Lease") is made effective as of ("Effective Date"), by and between ("Landlord"), This (this "Lease") is made effective as of ("Effective Date") , by and between and , ("Landlord"), and and the following tenants:
(the "Tenant")
Subject to the terms and conditions stated below the parties agree as follows:
PREMISES. Landlord, in consideration of the lease payments provided in this Lease, leases to Tenant (the "Premises") located at , , .
TERM. The lease term will begin on and will terminate on . If the Purchaser fails to exercise the option by such time and date, the option will automatically terminate and the Seller will be entitled to retain the non refundable consideration stated below.
LEASE PAYMENTS. Tenant shall pay to Landlord monthly installments of per month, payable in advance on the first (1st) day of each month. Lease payments shall be made to Landlord at , , , which location may be changed, in writing by Landlord, with a minimum of seven (7) days advanced notice to Tenant.
SECURITY DEPOSIT AMOUNT. At the time of the signing of this Lease, Tenant shall pay to Landlord, in trust, a security deposit of . Landlord must return any remaining amount of the deposit to Tenant within 60 days of termination of the tenancy.Landlord will retain only that portion of Tenant's deposit necessary to pay accrued rent or compensate Landlord for damages suffered by reason of Tenant's failure to maintain the dwelling unit.The deposit will be held in account at: , , , .The deposit will be held in account no. at: , , , .The deposit will be held in an account at: , , , .Tenant has the right to receive from Landlord a written list of all existing damages if Tenant makes a written request within fifteen (15) days of Tenant's occupancy.The deposit will be held in account no. at: , , , .The deposit will be protected by a bond from: , , , .
| The deposit shall be applied as follows: |
| Security Deposit: to be held and disbursed for Tenant damages to the Premises or other defaults under this Agreement, if any, as provided by law. Landlord has 30 days after the tenancy is terminated to mail a refund of the deposit if costs are deducted for damages that Landlord has suffered because of Tenant's noncompliance. |
POSSESSION. Tenant shall be entitled to possession on the first (1st) day of the term of this Lease, and shall yield possession to Landlord on the last day of the term of this Lease, unless otherwise agreed by both parties in writing. At the expiration of the term, Tenant shall remove its goods and effects and peaceably yield up the Premises to Landlord in as good condition as when delivered to Tenant, ordinary wear and tear excepted.
USE OF PREMISES/ABSENCES. Tenant shall occupy and use the Premises as a dwelling unit. Tenant shall notify Landlord of any anticipated extended absence from the Premises not later than the first (1st) day of the extended absence.
PETS. No pets shall be allowed on the Premises. Pets shall not be allowed without the prior written consent of Landlord. Tenant is permitted to have: No additional pets shall be allowed without the prior written consent of Landlord. At the time of signing this Lease, Tenant shall pay to Landlord, in trust, a deposit of , to be held and disbursed for pet damages to the Premises, if any, as provided by law. This deposit is in addition to any other security deposit stated in this Lease.
PROPERTY INSURANCE. Landlord and Tenant shall each be responsible to maintain appropriate insurance for their respective interests in the Premises and property located on the Premises. Tenant shall be required to maintain renter's insurance of not less than .
DAMAGE CAUSED BY TENANT. If any damage to the property shall be caused by their act or neglect, the Tenant shall forthwith repair such damage at their own expense, including damage to screens and windows where same is not covered by Landlord's insurance.
MAINTENANCE. Landlord shall have the responsibility to maintain the Premises in good repair at all times and perform all repairs necessary to satisfy any implied warranty of habitability except that Tenant shall be responsible for: . Tenant must notify Landlord within twenty-four (24) hours of any condition requiring maintenance.
UTILITIES AND SERVICES. Landlord shall be responsible for all utilities and services in connection with the Premises.Tenant shall be responsible for all utilities and services in connection with the Premises for the term of this Lease.Landlord shall be responsible for in connection with the Premises and Tenant shall be responsible for and any utilities and services not listed here.
TAXES. Landlord shall pay all real estate taxes which may be levied against the Premises.
DESTRUCTION OR CONDEMNATION OF PREMISES. If the Premises are damaged or destroyed by fire or other casualty to the extent that enjoyment of the dwelling unit is substantially impaired, Landlord, in its sole discretion may elect to repair the Premises or terminate the Lease upon thirty (30) days' written notice to Tenant. If the Premises are condemned or cannot be repaired, this Lease will terminate upon twenty (20) days' written notice by either party.
HABITABILITY. Tenant, or an authorized agent on Tenant's behalf, has inspected the Premises and fixtures and acknowledges by signature that the Premises are in a reasonable and acceptable condition of habitability for their intended use, and the agreed lease payments are fair and reasonable. If the condition changes so that, in Tenant's opinion, the habitability and rental value of the Premises are adversely affected, Tenant shall promptly provide reasonable notice to Landlord.
DEFAULTS. Tenant shall be in default of this Lease if Tenant fails to fulfill any lease obligation or term by which Tenant is bound. Subject to any governing provision of law to the contrary, if Tenant fails to cure any financial obligation within days (or any other obligation within days) after written notice of such default is provided by Landlord to Tenant, Landlord may elect to cure such default and the cost of such action shall be added to Tenant's financial obligations under this Lease.
LATE PAYMENTS. For any payment that is not paid within days after its due date, Tenant shall pay a late fee of , or as otherwise provided by applicable law.LATE PAYMENTS. For each payment that is not paid within days after its due date, Tenant shall pay a late fee of per day, or as otherwise provided by applicable law, beginning with the day after the due date.LATE PAYMENTS. For each payment that is not paid within days after its due date, Tenant shall pay a late fee equal to % of the required payment, or as otherwise provided by applicable law.
HOLDOVER. If Tenant maintains possession of the Premises for any period after the termination of this Lease ("Holdover Period"), Tenant shall pay to Landlord lease payment(s) during the Holdover Period at a rate equal to 150% of the most recent rate preceding the Holdover Period. Such holdover shall constitute a month-to-month extension of this Lease.
CUMULATIVE RIGHTS. The rights of the parties under this Lease are cumulative, and shall not be construed as exclusive unless otherwise required by law.
NON-SUFFICIENT FUNDS. Tenant shall be charged the maximum amount allowable under applicable law for each check that is returned to Landlord for lack of sufficient funds.
REMODELING OR STRUCTURAL IMPROVEMENTS. Tenant shall have the obligation to conduct any construction or remodeling, at Tenant's expense, that may be required to use the Premises as specified above. Tenant may also construct such fixtures on the Premises, at Tenant's expense, that appropriately facilitate its use for such purposes. Such construction shall be undertaken and such fixtures may be erected only with the prior written consent of Landlord, which shall not be unreasonably withheld. At the end of the lease term, Tenant shall be entitled to remove, or at the request of Landlord, shall remove such fixtures, and shall restore the Premises to substantially the same condition of the Premises at the commencement of this Lease.
ACCESS BY LANDLORD TO PREMISES. Subject to Tenant's consent, which shall not be unreasonably withheld, Landlord shall have the right to enter the Premises to make inspections, provide necessary services, or show the unit to prospective buyers, mortgagees, tenants or workers. However, Landlord does not assume any liability for the care or supervision of the Premises. As provided by law, in the case of an emergency, Landlord may enter the Premises without Tenant's consent.
DANGEROUS MATERIALS. Tenant shall not keep or have on the Premises any article or thing of a dangerous, flammable, or explosive character that might substantially increase the danger of fire on the Premises, or that might be considered hazardous by a responsible insurance company, unless the prior written consent of Landlord is obtained and proof of adequate insurance protection is provided by Tenant to Landlord.
MECHANICS LIENS. Neither Tenant nor anyone claiming through the Tenant shall have the right to file mechanics liens or any other kind of lien on the Premises and the filing of this Lease constitutes notice that such liens are invalid. Further, Tenant agrees to (1) give actual advance notice to any contractors, subcontractors or suppliers of goods, labor, or services that such liens will not be valid, and (2) take whatever additional steps that are necessary in order to keep the premises free of all liens resulting from construction done by or for the Tenant.
SUBORDINATION OF LEASE. This Lease is subordinate to any mortgage that now exists, or may be given later by Landlord, with respect to the Premises.
OPTION TO PURCHASE. Tenant, upon satisfactory performance of this Lease, at any time after the first periodic payment is made, shall have the option to purchase the real property described herein for a purchase price of , provided that the Tenant timely executes the option to purchase and is not in default of the Lease Agreement. Thereafter, each of the parties shall promptly execute any and all further instructions or other documents including a Sale Agreement which may be reasonably required for purchase of the real property. The Landlord shall credit towards the purchase price at closing the sum of from each monthly lease payment that the Tenant timely made.
TITLE. Landlord agrees to deliver, and Tenant agrees to accept, title to the Premises subject only to (a) a lien for taxes and assessments levied against the Premises, (b) any covenants, conditions, restrictions, easements, right, rights-of-way of record, and (c) such other exceptions as Landlord and Tenant approve in writing. Landlord shall deliver to Tenant a preliminary title report within thirty (30) days after Tenant's exercise of the option.
NOTICE REQUIRED TO EXERCISE OPTION. To exercise the Option to Purchase, the Tenant must deliver to the Landlord, a written notice of Tenants intent to purchase, not less than days prior to the expiration of the Lease Term. In addition, the written notice must specify a valid closing date. The closing date must occur before the original expiration date of the Lease Agreement.
OPTION CONSIDERATION. Nonrefundable option consideration in the amount of paid by the Tenant as consideration for this Option to Purchase Agreement, shall be credited to the purchase price at closing if the Tenant timely exercises the option to purchase. If the Tenant doesn't exercise the option to purchase, the Tenant shall forfeit the nonrefundable option consideration.
EXCLUSIVITY OF OPTION. This Option to Purchase Agreement is exclusive and non-assignable and exists solely for the benefit of the named parties above. Should Tenant attempt to assign, convey, delegate, or transfer this option to purchase without the Landlords express written permission, any such attempt shall be deemed null and void.
CLOSING AND SETTLEMENT. Tenant agrees that closing costs in their entirety, including any points, fees, and other charges required by the third-party lender, shall be the sole responsibility of Tenant. The only expense related to closing costs apportioned to Landlord shall be the pro-rated share of the property taxes due at the time of closing, for which Landlord is solely responsible.
FINANCING DISCLAIMER.THE PARTIES ACKNOWLEDGE THAT IT IS IMPOSSIBLE TO PREDICT THE AVAILABILITY OF OBTAINING FINANCING TOWARDS THE PURCHASE OF THIS PROPERTY. OBTAINING FINANCING SHALL NOT BE HELD AS A CONDITION OF PERFORMANCE OF THIS OPTION TO PURCHASE AGREEMENT. THE PARTIES FURTHER AGREE THAT THIS OPTION TO PURCHASE AGREEMENT IS NOT ENTERED INTO IN RELIANCE UPON ANY REPRESENTATION OR WARRANTY MADE BY EITHER PARTY.
REMEDIES UPON DEFAULT. If Tenant defaults under this Option to Purchase Agreement or the Lease Agreement, then in addition to any other remedies available to Landlord in accordance with law, Landlord may terminate this Option to Purchase by giving written notice of the termination. If terminated, the Tenant shall lose entitlement to any refund of rent or option consideration. For this Option to Purchase Agreement to be enforceable and effective, the Tenant must comply with all terms and conditions of the Lease Agreement.
ACKNOWLEDGMENTS. The parties are executing this Option to Purchase Agreement voluntarily and without any duress or undue influence. The parties have carefully read this Option to Purchase Agreement and have asked any questions needed to understand its terms, consequences, and binding effect and fully understand them and have been given an executed copy.
ASSIGNABILITY/SUBLETTING. Tenant may not assign or sublease any interest in the Premises, nor assign, mortgage or pledge this Lease, without the prior written consent of Landlord, which shall not be unreasonably withheld.
NOTICE. Notices under this Lease shall not be deemed valid unless given or served in writing and forwarded by mail, postage prepaid, addressed to the party at the appropriate address set forth below. Such addresses may be changed from time to time by either party by providing notice as set forth below. Notices mailed in accordance with these provisions shall be deemed received on the third day after posting.
LANDLORD:
,
TENANT:
,
Such addresses may be changed from time to time by either party by providing notice as set forth above.
GOVERNING LAW. This Lease shall be construed in accordance with the laws of the State of Commonwealth of .
ENTIRE AGREEMENT/AMENDMENT. This Lease contains the entire agreement of the parties and there are no other promises, conditions, understandings or other agreements, whether oral or written, relating to the subject matter of this Lease. This Lease may be modified or amended in writing, if the writing is signed by both parties.
SEVERABILITY. If any portion of this Lease shall be held to be invalid or unenforceable for any reason, the remaining provisions shall continue to be valid and enforceable. If a court finds that any provision of this Lease is invalid or unenforceable, but that by limiting such provision it would become valid and enforceable, then such provision shall be deemed to be written, construed, and enforced as so limited.
WAIVER. The failure of either party to enforce any provisions of this Lease shall not be construed as a waiver or limitation of that party's right to subsequently enforce and compel strict compliance with every provision of this Lease.
BINDING EFFECT. The provisions of this Lease shall be binding upon and inure to the benefit of both parties and their respective legal representatives, successors and assigns.
NOTICE TO LESSEE - READ BEFORE SIGNING
a. Do not sign this before you read the entire agreement including any writing on the reverse side, even if otherwise advised.
b. Do not sign this if it contains any blank spaces.
c. You are entitled to an exact copy of any agreement you sign.
d. You have the right to exercise any early buy-out option as provided in this agreement. Exercise of this option may result in a reduction of your total cost to acquire ownership under this agreement.
e. If you elect to make weekly rather than monthly payments and exercise your purchase option, you may pay more for the leased property.
LANDLORD:
| By: | Date: |
| By: | Date: |
TENANT:
| By: | Date: |
REAL ESTATE LEASE
INSPECTION CHECKLIST
Tenant has inspected the Premises and states that the Premises are in satisfactory condition, free of defects, except as noted below:
| SATISFACTORY | COMMENTS |
| Bathrooms | _______ | ______________________________ |
| Carpeting | _______ | ______________________________ |
| Ceilings | _______ | ______________________________ |
| Closets | _______ | ______________________________ |
| Dishwasher | _______ | ______________________________ |
| Disposal | _______ | ______________________________ |
| Doors | _______ | ______________________________ |
| Fireplace | _______ | ______________________________ |
| Lights | _______ | ______________________________ |
| Locks | _______ | ______________________________ |
| Refrigerator | _______ | ______________________________ |
| Screens | _______ | ______________________________ |
| Stove | _______ | ______________________________ |
| Walls | _______ | ______________________________ |
| Windows | _______ | ______________________________ |
| Window coverings | _______ | ______________________________ |
| ______________ | _______ | ______________________________ |
| ______________ | _______ | ______________________________ |
Tenant:
| By: ___________________________________ | Date: __________________ |
Acknowledged by Landlord:
| By: ___________________________________ | Date: __________________ |
| By: ___________________________________ | Date: __________________ |
REAL ESTATE LEASE
DISCLOSURE OF INFORMATION ON LEAD-BASED PAINT
OR LEAD-BASED PAINT HAZARDS
Lead Warning Statement
Housing built before 1978 may contain lead-based paint. Lead from paint, paint chips and dust can pose health hazards if not managed properly. Lead exposure is especially harmful to young children and pregnant women. Before renting pre-1978 housing, landlords must disclose the presence of known lead-based paint and/or lead-based paint hazards in the dwelling. Tenants must also receive a federally approved pamphlet on poisoning prevention.
Landlord's Disclosure
(a) Presence of lead-based paint and/or lead-based paint hazards (Check (i) or (ii) below):
(b) Records and reports available to the landlord (Check (i) or (ii) below):
Tenant's Acknowledgment (initial)
(c) _____ Tenant has received copies of all information listed above.
(d) _____ Tenant has received the pamphlet Protect Your Family From Lead In Your Home.
Agent's Acknowledgment (initial)
(e) _____ Agent has informed the landlord of the landlord's obligations under 42 U.S.C. 4852(d) and is aware of his/her responsibility to ensure compliance.
Certification of Accuracy
The following parties have reviewed the information above and certify, to the best of their knowledge, that the information they have provided is true and accurate.
Tenant:
| By: ___________________________________ | Date: __________________ |
Acknowledged by Landlord/Agent:
| By: ___________________________________ | Date: __________________ |
| By: ___________________________________ | Date: __________________ |
Washington Landlord Notarization
State of
County of
I certify that I know or have satisfactory evidence that is the person who appeared before me, and said person acknowledged that (he/she) signed this instrument and acknowledged it to be (his/her) free and voluntary act for the uses and purposes mentioned in the instrument.
Dated: _________________________
_________________________
(Signature)
(Seal or stamp)
_________________________
Title
My appointment expires _________________________
State of
County of
I certify that I know or have satisfactory evidence that is the person who appeared before me, and said person acknowledged that (he/she) signed this instrument and acknowledged it to be (his/her) free and voluntary act for the uses and purposes mentioned in the instrument.
Dated: _________________________
_________________________
(Signature)
(Seal or stamp)
_________________________
Title
My appointment expires _________________________
Checklist
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Important Details
In addition to a local attorney, there are several sources of information that may be available to provide you with additional information about the landlord/tenant laws of your state and city. Many cities have housing authorities or other governmental divisions that provide useful information. Also, some civil rights groups have information available related to housing needs and laws. Also consider low-income housing groups and legal services organizations. Often, these groups have a broad range of experience with landlord/tenant issues and can provide both advice and information at minimal or no cost.
Rent to Own Agreement FAQs
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How do you lease to own a home?
The best approach when you lease-to-own a home is to get your agreement in writing. In its most basic form, a Rent-to-Own Agreement is similar to a typical rental agreement, except that you pay a slightly higher amount in rent each month and a portion of that goes towards the purchase price. At the end of the lease period, you have the option to purchase the home based on the terms that were agreed to in the contract. In some agreements, you may be responsible for maintaining the property during the lease, unlike ordinary rental agreements where the landlord is responsible for repairs and maintenance. Rent-to-Own Agreements are not all the same, so you may want to speak to an attorney if you have any questions.
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Is Rent-to-Own a good idea?
There are advantages and disadvantages for both buyers and sellers in a Rent-to-Own situation. The two sides of a Rent-to-Own Agreement include the potential buyer(s) and the party looking to sell the property. In most cases, the most advantages go to the seller, but in some cases the buyer also experiences great advantages.
Advantages for the seller:
The first advantage is a quick influx of cash flow from long-term and steady rent payments. If the property has been difficult to sell, this could be a way to finally sell the property. Rents received, combined with the option fee, are often well above the market average.Disadvantages for the seller:
If the market changes, you are locked into the contract and cannot sell. If the contract includes a set purchase price, you may have to sell the property for less than the current market value. If the market moves in an unfavorable direction, the potential buyers could drop out and the owner would be left with a hard to sell and difficult to rent property with no incoming cash flow.Advantages for the buyer:
If the buyers are working on improving their credit and don't have a down payment, a Rent-to-Own Agreement gives them enough time to raise their credit score, pay off debt, and make payments towards a down payment. If a sale price is agreed upon, the buyers are protected from the home price rising and some equity will be earned by purchase time.Disadvantages for the buyer:
There is a chance that the buyers will not be prepared to make the purchase at the end of the lease period. The potential buyers may lose their jobs, experience an illness, or simply won't be able to pay down debt. And in the end, the investment paid towards the option fee and extra rent paid will be lost.Scams are also a legitimate concern, and all buyers should ensure that the agreement they are considering is legitimate and enforceable.
In addition to these factors, there are other things that can go wrong with Rent-to-Own Agreements. To protect your interests, here are a few potential issues that you should be aware of:
- Property owner doesn't pay their mortgage or taxes and could lose the property.
- Renter doesn't maintain the property well.
- Eager buyers get duped by a lease-to-purchase scam.
- While living in the property, renter finds flaws in the home that make them want to back out.
- Contract is terminated if rent is paid late and the renters lose their investment.
- Sellers might try to sabotage the agreement, so they can sell their property for a higher amount.
Rent-to-Own Agreements should be carefully reviewed before signing. They are expensive, long-term agreements, so it warrants diligent review. If everything goes well, renters can build their credit while the seller can benefit from two or three years of rental income during the lease period. At the end of the contract, in a best-case scenario, the seller sells a hard-to-sell property and the new owners get to enjoy the benefits of homeownership. If you are considering entering into a lease-option arrangement, it is important to talk to a lawyer.
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What should be included in a Rent-to-Own Lease Agreement?
A Rent-to-Own Agreement includes many of the same terms as a standard Lease Agreement, since it doubles as a rental agreement with an added option to purchase. Commonly included terms include:
- The location and description of the property.
- The full name of each tenant.
- What kind of utilities or amenities are included.
- The amount of rent and security deposit.
- How payment should be made.
The Rent-to-Own Agreement also includes details about the purchase, including:
Option fee - This fee is usually one to five percent of the price of the home. In most contracts, this fee is to reserve the "option" to buy the property and may go towards the down payment or equity.
Additional rent - Most contracts set the rent rate two or three hundred dollars higher per month than the going rate. So, if a home usually rents for $1200 per month, the rent might be set at $1500. The extra $300 is put towards the down payment or treated as "equity" and taken off the price of the home.
Termination - This portion of the contract is extremely important for both parties. It details how a renter might violate their lease, how a renter can quit the lease, and what the landlord's obligations are in such circumstances.
Home sale price - Some sellers and buyers agree on what the sale price will be when making the agreement. It could be current market value or the projected value. Some choose not to set the price until the time the actual purchase is to take place.
Your contract will also contain the typical legal language around smoking, late fees, invited guests, animals, and property damage. As you make your Lease Option Contract, you also will have the ability to add information about maintenance procedures, furnishings, and insurance requirements. Further modifications are allowed, as necessary.
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How does a Rent to Own home contract work?
In its most basic form, a Rent to Own Agreement is similar to a typical rental agreement, except that you pay a slightly higher amount in rent each month and a portion of that goes towards the purchase price. At the end of the lease period, you have the option to purchase the home based on the terms that were agreed to in the contract. In some agreements, you may be responsible for maintaining the property during the lease, unlike ordinary rental agreements where the landlord is responsible for repairs and maintenance. Rent to Own Agreements are not all the same, so you may want to speak to an attorney if you have any questions.
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Is this Rent-to-Own Contract legally binding?
As with any contract, a Rent-to-Own Contract is not legally binding until it is signed by the landlord and tenant(s). Unlike a rent-to-own contract template or blank PDF file that you might download elsewhere, every rental contract from Rocket Lawyer comes with the option of Document Defense®, so a Rocket Lawyer network attorney can review the situation and take action if you need to demand payment or experience any other issue.
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What would I usually pay for an attorney to create a Rent-to-Own Agreement?
The cost of finding and working with a law firm might cost anywhere from hundreds of dollars to thousands. With Rocket Lawyer, every Rent-to-Own Agreement that you create will be tailored to you. Simply tap or click the button that says "Make document" to get started. If you'd like, you may also try having your drafted document looked over by a Rocket Lawyer network attorney after making it.
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Will I need to do anything else once my Lease-to-Own Agreement has been drafted?
After creating a Lease-to-Own Agreement with Rocket Lawyer, you will be able to review it wherever and whenever you choose. You also may try any of the following actions related to your contract: making edits, printing it, getting electronic signatures via RocketSign®, or saving it as a Word or PDF document. Your Rent-to-Own Agreement will come with its own series of tips on what comes next after your document is finished. The tenant should receive a copy of the final contract. You may also wish to explore our entire repository of contracts and other documents for property owners and managers.
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What happens if the buyer chooses not to purchase the home?
This happens often. A lot can change within a two or three-year lease. Most contracts do not "require" the potential buyer to purchase. Even if the agreement is a "lease purchase" agreement, the buyer would still need to be able to qualify for financing. The standard contract is a protected right for the "option" to buy, but the renter generally still has the choice to not buy at the end of the term.
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What happens to the options fee and extra rent paid?
Contract terms vary, but in most cases the seller keeps the option fee. Extra rent is usually handled in one of two ways. First, the seller may put the extra rent into a protected escrow account to be used towards the down payment. A second action some sellers take is to put the total of the extra amount paid off the purchase price of the home. How the extra rent will be managed should be spelled out in the Rent-to-Own Agreement. Either way, if the potential buyer backs out, the money goes to the seller.
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What are some pitfalls to watch for when considering a Rent-to-Own Agreement?
Most Rent-to-Own Agreements are made "in good faith" that both parties are going to fulfill their side of the contract and that everything will go well. But sometimes bad things happen.
Some things to watch for include:- The seller not making their mortgage or tax payments.
- The buyer not being able to afford to keep up their part of the property maintenance.
- The buyer discovers property flaws not seen before living there long-term.
- Buyer needs to be wary of Rent-to-Own scams.
- Some contracts may be nullified if rents are paid late.
- Seller may try to make buying difficult if they are going to have to sell under market.
All contracts should be reviewed carefully, Rent-to-Own Agreements included. While there are numerous things to watch for, many Rent-to-Own Agreements work out well for both parties. If everyone does their part, aspiring homeowners can eventually purchase their own home and sellers can benefit from steady rents and ultimately sell the property to enthusiastic buyers.
If you are considering entering into a Rent-to-Own Agreement as a buyer or seller, it may be helpful to talk to a lawyer to have your contract reviewed and get any other questions answered.
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