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Home Legal Documents Lease/Rental Agreement Rent-To-Own

Free Rent-to-Own Agreement

Use our Rent-to-Own Agreement to lease your property to a tenant who may purchase it in the future.

Updated November 13, 2020

A Rent-to-Own Agreement, also known as Lease-to-Own, is a written document between two parties, the landlord or potential seller who owns the property and the tenant or potential buyer who is leasing the property. The agreement details the arrangement between the parties to lease the property, while also granting the tenant the option to purchase the property at the end of the lease term.

Table of Contents
  1. Rent-to-Own Agreement Details and Example
  2. When Do I Need a Rent-to-Own Contract?
  3. Consequences of Not Using a Rent-to-Own Agreement

1. Rent-to-Own Agreement Details and Example

Since a Rent-to-Own Contract is a kind of combination between a Lease Agreement and a Real Estate Purchase Agreement, there are a lot of details you need to include. Be sure all the details below are included when drafting your agreement.

Details to include:

      • Landlord/Seller: The name and address of the party who owns the property.
      • Tenant/Buyer: The name and address of the party who is leasing the property and obtaining the option to purchase.
      • Property: The address and legal description of the property.
      • Rent Payments: The amount of the monthly rent payments and any late fees.
      • Rent Term: The beginning and end dates of the lease term.
      • Security Deposit: The amount of the security deposit, if any, and details on the repayment of the security deposit at the end of the term.
      • Option to Purchase: A specific grant to the tenant of an option to purchase the property.
      • Option Consideration: The amount the tenant is paying for the option to purchase.
      • Purchase Price: The purchase price the tenant will have to pay if he or she purchases the property.
      • Earnest Money Deposit: A deposit in addition to the option consideration showing the tenant’s good faith intention to purchase the property.

Other details about the lease:

      • Use of the Property: How can the tenant use the property?
      • Condition of the Property: What kind of condition the property is in and whether anything needs to be fixed?
      • Holdover Tenancy: What will happen if the tenant stays on the property past the lease term?
      • Utilities: Are any utilities included in the monthly rent?
      • Maintenance and Repairs: Is the tenant responsible for any maintenance and repairs?
      • Alterations: Can the tenant make any alterations or improvements to the property?
      • Smoking: Can the tenant smoke on the property?
      • Pets: Are any pets allowed on the property?
      • Rules and Regulations: Are there any other specific rules and regulations the tenant must follow?
      • Subleasing: Can the tenant sublease the property?
      • Renter’s Insurance: Does the tenant need to carry renter’s insurance?
      • Damage to the Property: What happens if the tenant damages the property?
      • Surrender of the Property: What happens at the end of the lease term if the tenant does not exercise the option to purchase?
      • Default: What happens if the tenant defaults?

Learn more about how the rent-to-own process works.

Other details about the purchase:

      • Property Included in Sale: What personal property and fixtures are included with the sale?
      • Exclusivity of Option: Is the option to purchase exclusive to the tenant?
      • Inspection: Is the buyer purchasing the property “as is”?
      • Closing: When will the closing occur?
      • Closing Costs: Who will pay what closing costs?
      • Title Insurance: Who is responsible for obtaining title insurance?
      • Financing: Is the tenant allowed to seek financing to cover the purchase price?
      • Real Estate Taxes: Who is responsible for real estate taxes?
      • Existing Mortgages: Does the seller have to pay off any existing mortgages?
      • No Equitable Ownership: Do the rental payments give the tenant any title interest in the property?

Other legal details:

      • Disclosures: Include any required federal and state disclosures such as lead paint, mold and/or sex offender registry disclosures.
      • Notices: Note where notices regarding the agreement should be sent to the landlord and tenant.
      • Severability: State that if one provision is held to be invalid, it will not affect the validity of the rest of the agreement.
      • Binding Effect: Note that the agreement will be binding on the parties and their heirs
      • Governing Law: Decide which state’s law will control the agreement.
      • Amendments: State how amendments to the agreement can be made.
      • Disputes: Include how disputes will be resolved – by mediation, arbitration, litigation, or a combination.
      • Entire Agreement: Affirm that the agreement is the entire agreement and supercedes all other agreements.

As a reference, a Rent-to-Own Agreement is known by other names:

        • Rent-to-Own Contract
        • Lease Option Agreement
        • Lease-to-Own Agreement
        • Lease with the Option to Purchase Agreement
        • Lease Purchase Contract
        • Option to Purchase Agreement
        • Contract-to-Deed Agreement

 

Rent-to-Own Agreement Sample

The sample rent-to-own agreement below details a contract between the landlord, ‘Casey S Silverman’, and the tenant, ‘Sophia M Cargill.’ Casey S Silverman agrees to lease the property to Sophia M Cargill with the option to purchase it at an agreed-upon price.

Rent-to-Own Agreement Sample

2. When Do I Need a Rent-to-Own Contract?

contract for rent-to-own
Use a Rent-to-Own Agreement when you plan on purchasing or selling a rental property.

A Rent-to-Own Agreement is used when a tenant wants to rent property for a set amount of time, usually several years, and have the option to purchase the property at or before the end of the term. Oftentimes, the tenant cannot purchase the home right away for a number of reasons – because they do not have the money for a down payment, do not have high a enough credit score, cannot get a loan, or simply are not ready to commit. And in a slow market, a lease option arrangement gives a seller more options while receiving a steady income.

While the market for a rent-to-own home tends to be smaller, it can be a good option for the right seller and buyer. Below is a list of some of the benefits and drawbacks of this agreement:

Seller’s ProSeller’s Cons
Higher sales price if market goes downLower sales price if market goes up
Invested tenants who will take better care of the propertyTenant usually gets an exclusive option
Longer rental term with steady incomeUnable to sell the home during the lease term
Minimal risk and a nonrefundable option feeChance the seller doesn’t buy the property
No commission needs to be paid to a brokerDon’t receive a large lump sum payment
Buyer’s ProsBuyer’s Cons
Lower sales price if market goes upHigher sales price if market goes down
More time to get a loan or improve creditStill might not be able to qualify for a loan
Can purchase a home without a large down paymentWill lose the option fee paid if you don’t purchase the home
Can “test out” the home and neighborhoodCan lose the option if you fall behind on rent
More likely able to make improvements to the homeIf the seller forecloses, you lose everything you have put in

Option to Purchase

The tenant’s option to purchase does come at a price. The tenant will have to pay the landlord “option money” or some kind of option consideration or premium. This consideration can be a set amount that is paid upfront – typically between 2.5%-7% – or it can be a portion of the monthly rent payments. While the fee or any premium is non-refundable, it can usually be applied as a credit to the purchase price if the option is exercised.

Sometimes the tenant will also be required to pay for extra maintenance and repairs, as the tenant will have a vested interest in the property. Such repairs can range from fixing plumbing leaks to repairing the roof. The parties can also negotiate who will pay property taxes, homeowner’s fees, and other monthly expenses related to the property.

Tip: Still not sure if this is the right agreement for you? Here is a New York Times article about some of the benefits and risks of a Rent-to-Own Agreement.

3. Consequences of Not Using a Rent-to-Own Agreement

problems without rent to own agreement
Without a Rent-to-Own Agreement, both tenants/buyers and landlords/sellers could face headaches.

Without a Rent-to-Own Agreement, tenants/buyers and landlords/sellers would be left with fewer options. The landlord might not follow through on his or her oral promise to sell that the property at a certain purchase price at the end of the lease term. Or the tenant might deny promising to pay for all maintenance and repairs on the property.

The parties might also have to decide outright between whether to rent the property or sell the property, and will not be able to take advantage of the benefits of a Rent-to-Own Agreement.

Be sure to read the wording in the agreement carefully. Some lease purchase agreements create an OBLIGATION and not the OPTION to purchase the property.

Here is a list of some possible headaches this agreement might help prevent:

Landlord/SellerTenant/Buyer
Lost Money

  • Can’t lock in a higher purchase price when the market is high

  • Have to pay for all maintenance and repairs to the home

Lost Money

  • Paid rent premium but didn’t receive the option to purchase

  • Improvements made to rental home are lost at end of the lease

Lost Time

  • Have to market property for sale

Lost Time

  • Have to look to new home

Mental Anguish

  • Stress over mortgage payments

  • Concern over how tenants with no attachment will treat the home

Mental Anguish

  • Don’t have the means to own a home

  • Can’t put down roots and investment in a home

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sample image of a lease purchase agreement also known as a rent to own agreement
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Free Rent-to-Own Agreement Contract

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