WHAT IS RENT TO OWN?
Also known as Rent to Buy and refers to a contract which includes a standard lease agreement in which you commit to rent the property for a specific period of time with the option of purchasing it. It is most attractive to those who are unable to qualify for mortgage loans, have low credit scores or cannot afford the additional costs that come with purchasing a home.
These agreements vary significantly, it is therefore important to note the difference between a ‘lease – option agreement’ and a ‘lease – purchase agreement’:
Lease – option agreement: this kind of agreement merely gives you the option to purchase the property, and at the end of the lease you can merely walk away.
Lease – purchase agreement: you commit to buying the property at the end of the lease agreement, irrespective of whether you want to or not.
HOW DOES IT WORK?
For the duration of the lease agreement, you will be considered to be an ordinary tenant, monthly repayments will either be deducted from the purchase price decided upon or a percentage will be allocated to the deposit required. Your rights and responsibilities will be dependent on the terms agreed upon.
And although you receive ‘possession’ of the property by virtue of residing in it, ownership will only be transferred once all the terms and conditions of the agreement have been fulfilled and the property has been registered in your name at the Deeds Office.
NATURE OF THE AGREEMENT
The following are some terms and clauses that the seller and potential buyer will need to agree upon and ought to be included in the agreement:
- Length of Lease: Agreement needs to stipulate the date which the lease expires, the notice period that the buyer needs to give before they can exercise their option.
- Option Fee: additional costs that are added on to your monthly rental payments – this amount needs to be clearly stated and provision made for potential increase during the period of the lease.
- Purchase Price: Some instances it’s agreed upon that amount will be determined at time of lease expiring, to reflect the current market value. Some sellers take a risk and agree to a purchase price at commencement of the lease.
- Maintenance: usually the responsibility of the landlord because you enjoy ‘tenant status’; however, it is not uncommon for this to be shifted onto the tenant. You need to read the fine print and be aware of your maintenance and repair responsibilities.
Rent to own sounds attractive mainly because you have time to increase your credit score, save for a deposit and you get to ‘test’ the home before purchasing it. However, a great deal of due diligence is required if you are considering this option.