Lease Purchase

Lease option sales were in the first place used as a way to circumvent alienation clauses in mortgages. The lease option sales were preferred financing instruments in the late 1970s and early 1980s. Proponents claimed that the sale wasn't really a sale, because it was a lease. But the courts reasoned otherwise.

Today there are 3 different financing documents:

- The options to lease purchase
- The lease option
- The lease purchase agreement

The variances are state specific and not all states have identical laws. Before entering into an arrangement with a seller, buyers should obtain the advice of a real estate lawyer. The information below is an overview and is not meant to be construed as lawful advice.

The basic principles of an Option:

    * Option money will be payed by the buyer to the seller. This money is for the right to later purchase the property and may be substantial or as little as $1.

    * Right away the buyer and seller may agree to a purchase price or the buyer may agree to pay market value at the time the option is exercised. It's negotiable, but most buyers want to lock in the future purchase price upon inception of the option.

    * The standard length for the term of the option agreement is mostly from 1 year to 3 years. But it's always negotiable.

    * Option money is seldom refundable.

    * During the option period, nobody else can buy the property.

    * The buyer can sell the option to someone else.

    * The option runs out when the buyer doesn't exercise the option and purchase the property at the end of the option.

    * The buyer is not obliged to purchase the property.

The basic principles of a Lease Option:

    * The buyer pays option money to the seller. This option money is for the right to later purchase the property. The lease option money may be substantial.

    * Instantly the buyer and seller may agree to a purchase price or the buyer may agree to pay market value at the time the option is exercised. It's negotiable. But still most buyers want to lock in the future purchase price upon inception of the lease option.

    * The buyer agrees to lease the property from the seller for a preset rental amount (during the term of the lease option).

    * The average length for the term of the lease option agreement is mostly from one year to 3 years. But it's always negotiable.

    * The option money mostly doesn't apply toward the down payment.

    * A portion of the monthly rental payment typically applies toward the purchase price.

    * Option money is seldom refundable.

    * During the lease option period, nobody else can buy the property.

    * Without the approval of the seller, the buyer generally cannot assign the lease option.

    * The option expires when the buyer doesn't exercise the lease option and purchase the property at the end of the lease option.

    * The buyer is not obligated to purchase the property.

The basics of a Lease Purchase:

    * For the right to later buy the property, the buyer has to pay option money to the seller.This option money may be substantial.

    * Buyer and seller agree on a purchase price, frequently at or a bit higher than market value.

    * During the term of the option, the buyer agrees to lease the property from the seller for a predetermined rental amount.

    * The common length for the term of the lease purchase agreement is generally from 1 to 3 years. But it's always negotiable. In this time the buyer applies for bank financing and pays the seller in full.

    * The option money generally doesn't apply toward the down payment.

    * A share of the monthly lease payment typically applies toward the purchase price.

    * Option money is nonrefundable.

    * Nobody else can purchase the property unless the buyer defaults.

    * Without the approval of the seller, the buyer typically cannot assign the lease purchase agreement.

    * Maintaining the property and paying all expenses connected with its upkeep (including taxes and insurance), are frequently responsibilities of buyers.

    * The buyer is obligated to purchase the property.

I hope this article provided the needed information.