Rent-to-Own Lease Agreement

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When credit issues and an uncertain lending environment make it difficult for a consumer to obtain a mortgage to purchase a home, renting a home with the intent to buy can be an ideal option. Renters who aren't currently ready to buy may sign a rent-to-own lease agreement that gives them the option to purchase the residence at a later date. A portion of the rent is often set aside to use toward a down payment. The current homeowner or landlord will create a lease agreement that results in a win-win situation for both buyer and seller.

Lease Terms

The lease terms section of a rent-to-own lease agreement includes information such as the address in which the property is located, including the county. The section includes the date in which the agreement takes effect, as well as the length of time the property will be leased. In some cases, properties can be rented on a month-to-month basis but most rent-to-own leases are on a fixed-term basis.

Rent Payments

Rent payment provisions describe the amount of the monthly rent, when it should be paid, and in cases of rent-to-own leases, how much of the rent will go toward the purchase of the home at the conclusion of the lease. The rent payments section also outlines any fees or penalties that will be added to the rent if the tenant makes a late payment.

Option to Buy

The "option to purchase" section of a rent-to-own lease agreement explains the specified time and price at which the property will be purchased. The renter is usually aware of the purchase price of the home because the price will be listed in the lease agreement. In cases where current real estate market prices do not reflect the home's true value at the time the lease is signed, a formula for price is included in the lease. The formula for price is a way to ensure that the purchase price of the home is fair at the time the option to purchase is exercised. The formula usually consists of a base amount plus a predetermined appreciation percentage that will be added and used as the actual price of the home.

Option Payment

Many rent-to-own lease agreements include provisions regarding option payments. This is a non-refundable payment that a tenant buyer pays up front for the right to purchase the home at the end of the lease term. It also protects the landlord if the tenant decides not to purchase the home. The amount of the option payment is at the sole discretion of the landlord but can go as high as several thousand dollars. This payment is added incentive on the part of the tenant to purchase the home at the end of the lease or risk losing the option payment as well as several months or even years of rent payments.

Additional Provisions

The end of a rent-to-own lease agreement includes a section for any additional provisions that were not outlined in the lease. This section allows the landlord to include any additional information that is pertinent to the sale of the property, modifications to the agreement, or any other disclosures that are legally necessary to protect the rights of the owner of the property as well as the tenant.