Lease-Option Vs. Lease-Purchase Agreements

By February 14, 2016 No Comments

What exactly is the difference between a lease-option agreement and a lease-purchase?  These contracts are not interchangeable, so be careful with these two terms when you are entering into a rent-to-own arrangement.

A lease-option is essentially leasing agreement that gives you the option to buy the house.  The agreement will require the property owner to sell the home if the tenant exercises the option to buy.  The tenant is not obligated to buy. The lease-option agreement usually will set the purchase price. Typically the buyer must exercise the option to buy by the end of the leasing period.

A lease-purchase will actually schedule the sale instead of simply giving the tenant the option to buy. The lease-purchase agreement comes with a sales contract attached that will lock both the buyer and seller into a sale. That contract will generally schedule the sale at the end of the lease. Under a lease-purchase agreement, a buyer who decides against going ahead with purchasing the house will usually incur heavy penalties. That is exactly why most real estate attorneys and brokers advise caution about using the lease-purchase contract.

However, the lease-purchase agreement is still widely used by buyers and sellers. The lease-purchase allows buyers to get into the home before the scheduled purchase date and gives them the time they need to resolve credit issues and save up for a down payment or even sell their own current home.

Some buyers who are relocating from another city might prefer the lease-option when they first move into an area.  The relocation buyer may want to live in in a particular neighborhood before committing the purchase. Leasing a home is a very good option for these buyers. A lease-option allows the buyer the option to purchase the home if they decide they like it after leasing it for a while, essentially giving you a test driving period for your new home.

Sometimes lease-options require the buyer to pay a non-refundable premium in return, as the arrangement generally favors the buyer with more flexibility than the seller.