I recently read a good article on Lease with Option to Buy Contracts at the RealtyTimes site by Benny L. Kass, a lawyer. Option to Buy contracts are popular with people who may not be in a position to get the necessary financing to buy right now, perhaps because they are still trying to sell a home or maybe because they had some financial difficulties that impacted their credit and are still working their way back from that.
No matter what the reason is behind the need to do a Lease with Option to Buy contract, the buyer and seller both need to realize that they need help with that contract beyond what a Realtor® would normally be able to provide. Hopefully the Realtors involved have already advised them to get an attorney involved to draft the contract. As Kass points out in his article, there are just too many questions involved in such a contract to leave it to chance. Even if the Realtors involved have some “standard boiler-plate” Lease with Option to Buy contracts, it is worth a review by your own attorney to make sure that your interests are clearly protected and that there are clear definitions of what happens with any money that has been paid when the option is exercised or allowed to lapse.
In general, the lease portion of the contract needs to clearly define what happens to the money paid monthly as lease payments and what happens with any money that is paid as a security deposit. In addition, the disposition of any “down payment” money that is paid up front, should the option not be exercised needs to be clearly stated in the document. Also enumerated in the document should be any restrictions on the buyer during the term of the lease, including what they can and cannot do to the house. The owner might allow painting and minor redecorating but restrict any real remodeling projects. There would need to be clear provisions for what happens to the remodeling content that might be added to the property, should the option to buy not be exercised.
Both sides usually go into these Leases with Option to Buy contracts with the best intentions of the option being exercised; however, life gets in the way occasionally and both sides need to have clear protections in the contract for their interests and rights. The seller may not plan on ever getting the property back when he enters the agreement; however, what happens if his own fortunes take a turn for the worse? Can he get his hose back at the end of the lease period or even before? What will he have to give back to the buyer if that happens? As Kass points out in his article, both sides would like to have the contract skewed to better protect their own interests. The best contract would clearly state and protect the legitimate interests of both sides.
There is a clause in all of the real estate contracts that I have seen that advises the parties to seek the advice of an attorney. That clause states that the contract is an important legal document and should be clearly understood by all parties. Unfortunately, many buyers and sellers just see a bunch of “blah,blah, blah” legal gobbledygook when they try to read through the contracts. The Lease with Option to Buy contact is one on which you absolutely should seek the advice of your attorney. If you don’t have an attorney that you’ve used for other things, as your Realtor for a referral.