Rent to Own / Lease to Own

Ok, this is not a legal opinion or position. If you undertake this from a seller or a buyer side, get a real estate lawyer because these are complex and risky for everyone.

Rent to Own or Lease to Own are deals where often the buyer can not qualify for a loan but wants to buy a house. Or the buyer may not be certain they really want to buy the house, so they want to live in it for a while before they complete the deal. The seller agrees to cooperate with the buyer and ‘assist’ with the situation.

This is not the same as an Owner Will Carry. With OWC, the sale is made and is recorded. With Rent to Own (RTO), the sale is NOT recorded and the property remains in the sellers name.

Common problems:
1) The renter is making payments often higher then the going rental rate with ‘part of it to be credited to the sale price’. This often becomes a point of disagreement at some point.

2) When is the price of the sale set? At the beginning or at the end of the rental time frame?

3) If the seller collected ‘extra’ security as part of the offer – under what circumstances does the renter get the money back?

4) As with any purchase – there are lots of fees involved. Who is paying for them? If this is not agreed to in the beginning – AND written down then signed by all parties, there will be a fight over them.

5) Who and when and how can the deal be cancelled? If the buyer stays the initial time frame (1,2,3 or ?? years) and then wants to stay longer, does the Rental Credits still grow?

6) Is there a max dollar or percent of purchase price the renter/buyer can accumulate?

7) If the seller sells the house to another person (or passes away and heirs take possesson) are they bound by the deal?

8) What personal property (stove, washer, dryer, refrigerator, etc) are included?

9) If there are rental increases in the agreement, does the rent towards purchase amounts change?

10) Who is responsible for maintenance? I have seen RTO agreements written where the ‘renter/buyer’ was responsible for ALL maintenance including replacing $4,000 A/C systems. Would you want to put a new unit on someone elses property and not get credit for it?

These are just a few things that need to be worked out in all Rent to Own / Lease to Own deals. And yes – you really do need an attorney. It might be $500-$1000, but the savings could be 10 times that.