Free Rent-to-Own Agreement Template

Rent-to-Own Lease Agreements – By State

Rent-to-own lease agreements must follow the real estate and landlord-tenant laws of your state. To make sure your contract complies with local rules, use a state-specific rent-to-own lease agreement template. Choose your state below to get a tailored form that reflects required disclosures and tenant protections in your area.

What Is a Rent-to-Own Agreement?

A rent-to-own agreement dictates the terms of a rental arrangement and allows the option to buy the property once the lease ends. It combines elements of a typical lease and a standard real estate purchase agreement.

A lease option gives the tenant the choice (but not the obligation) to buy the property at the end of the lease. However, a lease purchase agreement requires the tenant to buy the property when the lease is over. Legal Templates’ form lets you implement a lease option, giving the tenant flexibility while still letting you collect rental income.

Pros & Cons of Rent-to-Own Contracts

Rent-to-own lease contracts offer unique benefits and drawbacks for landlords/sellers and tenants/buyers. Review the pros and cons for each party so you fully understand the arrangement.

How Does Rent-to-Own Work?

While a rent-to-own lease works similarly to a regular lease, it has the unique consideration of the purchase option at the end. Learn how a rent-to-own agreement works below:

1. Assess and prepare the property: Assess the property’s market value using tools like realtor.com and ForSaleByOwner or consult a local realtor. Complete renovations and perform repairs to improve the property’s appeal to potential buyers.
2. Show the property: Show the property to interested buyers through private viewings or open houses. Emphasize the property’s unique features and explain the benefits of a rent-to-own arrangement.
3. Screen potential buyers: Verify a potential tenant’s income to ensure they are reliable and can afford the rent. Tenants’ provision of pay stubs, an employment verification letter, and bank statements can prove their financial reliability. Ask interested parties to fill out a rental application and obtain their permission to conduct a background check.
4. Negotiate the agreement: Negotiate the lease terms you and the tenant must follow. Also, decide when and how you will arrive at a purchase price for the home.
5. Sign the agreement: Have both parties sign the contract to solidify the terms.
6. Rent and maintain the property: Initiate the lease period, ensuring the tenant meets their payment obligations. Follow the maintenance protocols outlined in the agreement.
7. Update terms: A lease addendum or lease amendment can help you record changes to lease terms as needed.
8. Close the sale: As the end of the lease term approaches, prepare for the tenant to issue a notice that they want to exercise their option to purchase the property. Facilitate the sale when they’re ready. You may need to coordinate with title companies, legal professionals, and other parties in the closing process.

Can a Landlord Break a Rent-to-Own Contract?

Yes, you can break a rent-to-own lease contract as the landlord/seller in some instances. Refer to the contract to learn under what circumstances you can break the contract. You may also be able to break the agreement due to a tenant’s breach of terms, like failing to pay or breaking specific rules.

If you need to break the contract for a reason the agreement doesn’t support, there may be consequences. For example, you may need to compensate the tenant for damages or face lawsuits requiring you to deliver ownership of the property against your wishes.

How to Write a Rent-to-Own Contract

When writing a property lease with a purchase option, specific clauses are essential. Follow these steps to create your own with Legal Templates.

1. Record Premises Details

Provide the property’s physical address and legal description. Give information about the leased property to identify it, including the following:

• Type of housing
• Number of rooms
• Parking
• Storage
• Furnishings
• Condition of premises
• Additional details

For any properties built before 1978, include a lead-based paint disclosure. Also, include state-specific lease disclosures, such as information about existing property damage or the return of security deposits.

2. Provide Landlord & Tenant Information

Identify the tenant who will be renting the property, including their full name and address. Add a second tenant if the primary tenant will have a co-tenant.

Name yourself as the landlord and provide your address. If you’re working with someone to rent and sell the property, add your co-landlord.

Indicate whether you require your tenant to have a guarantor or co-signer. This person is for your protection as the landlord, as they will become responsible if the tenant defaults on the lease.

3. Describe Lease Payment Details

As you continue with your lease option agreement, give the details you need to highlight how the tenant will pay:

• Lease term’s start date
• Lease status (fixed-term or month-to-month)
• Rent amount
• Rules for prorated rent
• Monthly rent due date and any grace period for payments
• Accepted payment methods
• Late fees
• Utility charges
• Security deposit handling
• Maintenance and repair payment responsibilities

4. Highlight Lease Provisions

During the rental period of your rent-to-own home agreement, you’ll want the tenant to follow specific guidelines. Outline these details to ensure the tenant respects the property and adheres to your rules:

• Use of premises (smoking, pets, visitors, etc.)
• Requirement to complete an inspection checklist
• Lease assignment and sublease rules
• Rules for military personnel terminating their lease
• Requirement to obtain renter’s insurance
• Whether the tenant can grant a mechanic’s lien on the property to a service provider
• Rules for terminating the lease

5. Explain the Option to Purchase

State whether you and the tenant have agreed upon a purchase price. If not, specify that you will decide at a later date. Note when the option to purchase begins and expires so the tenant knows the period they have to decide.

In a rental agreement with a purchase clause, the tenant pays a premium in exchange for the option to buy the property. Indicate if the tenant will pay this fee as an upfront fee to the landlord or a higher monthly rent payment (where a portion of the rent goes toward the payment for the option to purchase).

Provide other details as needed, such as whether there will be an earnest money deposit. This deposit is a good-faith show that the tenant intends to buy the property, and it will be credited toward the purchase price if the tenant decides to buy. If the tenant chooses not to buy, they usually get the earnest money deposit back.

You should also specify if certain personal property will be included or excluded from the sale. This creates clarity about what the buyer will and won’t receive with their purchase.

6. Summarize Closing Information

List the payment methods that you will accept at closing. If the buyer will pay all closing costs, specify this. If not, indicate what closing costs you will cover as the seller.

You must also include key information about title insurance, which protects against damages due to title defects. Note which party will be responsible for buying title insurance and which party will choose the title insurance company. Include who will be responsible for paying prorated property taxes at the time of sale.

7. Give Final Details

Finalize the agreement for tenants to buy later by adding any additional provisions you want to include. For example, you may indicate whether the purchase price will be recalculated based on future appraisals.

Include other provisions to make the contract enforceable, such as the effective date, dispute resolution, and the governing law.

Rent-to-Own Contract Sample

Wondering what a rent-to-own agreement form looks like? View a free sample below. When you’re ready, write your own and download it as a PDF or Word document.