Lease Options - Lease Purchase Sales

Lease option sales were popular financing instruments in the late 1970s and early 1980s. They were primarily used as a way to circumvent alienation clauses in mortgages. Proponents claimed the sale was not really a sale because it was a lease; however, courts argued otherwise.

Today, options to purchase, lease options and lease purchase agreements are three different financing documents. The variances are state specific and not all states have identical laws. Before entering into an agreement 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 legal advice.

Basics of an Option

    * Buyer pays the seller option money for the right to later purchase the property. This option money may be substantial or as little as $1.
* Buyer and seller may agree to a purchase price now or the buyer may agree to pay market value at the time the option is exercised. It is negotiable. However, most buyers want to lock in the future purchase price upon inception of the option.
* The term of the option agreement is negotiable, but the common length is generally from one year to three years.
 * Option money is rarely refundable.
* Nobody else can buy the property during the option period.
* The buyer can sell the option to somebody else.
* If the buyer does not exercise the option and purchase the property at the end of the option, the option expires.
* The buyer is not obligated to buy the property.
Basics of a Lease Purchase

    * Buyer pays the seller option money for the right to later purchase the property. This option money may be substantial.
* Buyer and seller agree on a purchase price, often 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 term of the lease purchase agreement is negotiable, but the common length is generally from one year to three years, at which time the buyer applies for bank financing and pays the seller in full.
 * The option money generally does not apply toward the down payment.
 * A portion of the monthly lease payment typically applies toward the purchase price.
 * Option money is nonrefundable.
 * Nobody else can buy the property unless the buyer defaults.
 * The buyer typically cannot assign the lease purchase agreement without seller approval.
 * Buyers are often responsible for maintaining the property and paying all expenses associated with its upkeep, including taxes and insurance.
 * The buyer is obligated to buy the property.
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