Leasing with the Option to Buy
Leasing with an option to buy is when a renting tenant signs an agreement with a landlord stating that the tenant can buy the property at the end of a prearranged time period. The owner is obligated to sell at the option price, but the tenant is not obligated to buy. The tenant can buy the property only if the landlord exercises the option.
Usually, purchase price is set out in the original lease-option agreement – in other words, the purchase price is set according to today’s market, not in the future when the option may be exercised.
An option to buy doesn’t give the tenant legal title to the real estate. The tenant becomes a purchaser only upon exercise of the option, at which time the landlord-tenant relationship ceases and the option becomes an absolute and binding contract of sale.
A unique feature of the lease-option is the rent credit. The tenant usually pays above-market rent for the property, but a (nonrefundable) portion is credited toward the purchase price if the buyer decides to exercise the purchase option.
This can be quite advantageous in some circumstances. Whether relocating to the area from a new job opportunity or simply moving to a new neighborhood, tenants have the ability but not the long-term obligation of testing out a neighborhood. This affords the flexibility of getting to know your commute time, neighbors, schools, parks and local businesses. For more information, please visit Home Partners of America® to learn more about this program.