Contract

A rental lease agreement sets forth the obligations of the tenant and the homeowner. The purchase clause outlines an option for the tenant to purchase the home within a specified amount time. The clause typically includes details of the purchase agreement to be exercised if the tenant decides to purchase the home.

Time Frame

The tenant and the owner negotiate the terms of the lease purchase option detailing the time limit during which a tenant may purchase the home. This option often comes with a longer rental term than traditional rental agreements. The tenant may also choose to continue to rent, and not purchase the home, until the expiration of the lease agreement.

First Rights

A tenant under a lease purchase agreement has the first rights to buying the home. The homeowner cannot sell the home until the tenant has denied his option to buy the home, or after the contract has expired.

Payments

The contract also outlines how much of the monthly rental payments go toward the purchase of the home if the tenant chooses to exercise this option. This amount may be a percentage of the rent or may include a nonrefundable deposit that will be used as down payment toward the purchase price. The tenant may negotiate a higher rent to secure a lower mortgage payment later.

Opting Out

A tenant may choose not to purchase the home and simply rent until the end of the lease agreement. The purchase clause is optional, so there is no obligation for the tenant to purchase the home. In this case, the money paid toward the lease agreement and any down payment that would have gone toward the purchase price is not refunded. Instead, it is considered part of the monthly rental payments unless otherwise outlined in the contract.

Source:

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