Tuesday, November 22, 2022

How does a lease with option to buy work?

With rental prices rising every month, many people are considering buying a home. This requires prior savings to pay the signal. However, there is a contract between the two worlds. This is a lease with option to buy.

What is a lease with option to buy?
This contract is one of the best options for those who want to own a house, but at the moment do not have enough money to buy it. With this mixed contract, since it is a rental contract and a purchase contract, the tenant can live in the house they want by paying a fee, deducting part or all of the rent from the final price for future purchases. The price of the future sale is fixed in the contract. Also the term to make it valid.

How does this contract work?
For a lease to purchase to be legally enforceable, it must reflect all aspects of the purchase and lease.

Regarding the rental:
• Rental period.
• Term of purchase of the house.
• A monthly fee paid by the tenant.
• Who pays the expenses associated with the rent (community, garbage expenses, reforms, etc.)

The following points should be considered when making a purchase:
• Tenant's written intent that he is committed to purchasing the home.
• The sale price cannot be changed.
• The percentage of the lease will be deducted from the purchase price.
• It is customary to leave an initial payment, which is then deducted from the future sale. In the event that the tenant backs out, the owner may keep it.

How and when to exercise the purchase option
For the purchase option to be valid, the lessee must express his decision to use the option within the period specified in the contract. The usual way to do this is in the presence of a notary public, although the contract may specify another way. When it comes to the term, most of the time both parties agree to it at the beginning of the lease.

Advantages and disadvantages of choosing to buy a lease
This type of contract has several advantages and disadvantages that vary depending on the party involved.

Advantages lease with option to buy for the owner:
• Earn money on rentals from the start.
• The initial bond is a guarantee against default.
• It is a way to take advantage of the house immediately without giving up future sales.
• You are entitled to tax relief for rental property.
• If the final tenant does not buy the house, it is with the amount paid as premium.

• The tenant can back down and this supposes a loss of time.
• During the term of the contract, the property cannot be sold, even if the owner is given a better offer.
• In the event that housing prices rise, it cannot be sold to the tenant for a price higher than that set in the contract.

Advantages and disadvantages for the tenant

• As long as he pays rent and lives in a house he likes, he is discounting part of the final sale price.
• Housing is insured
• If you have the necessary funds, you can buy the house at any time during the rental period.

• He will lose the initial bonus, if he does not buy the house within the established term.
• Since the price is set in the contract, even if housing prices drop, he will not be able to buy the house for a price lower than the agreed amount.
• If you have the necessary funds, you can buy the house at any time during the rental period.
• The contract is subject to double taxation of the property transfer tax, both on the lease side and on the purchase option side.

What is the duration of a lease with option to buy?
According to the Urban Leasing Law (LAU), the maximum term that a person can rent with the option to buy is five years. The lease can be extended with the consent of the owner. In this case, the rental contract ends and another contract with the extension is signed.

What percentage is deducted from the rent with option to buy?
The percentage of the final price discounted from the monthly rent can be total or partial. Some owners stipulate that 70% of the monthly payment is deducted from the final value. In addition, the premium offered at the beginning of the contract will be deducted from the final price.

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