People ask me about the difference between a lease purchase agreement and a
lease option agreement. Those terms sound deceptively similar, but if you are the buyer you need to be aware that they are not the same at all. When I am making decisions about how to sell my home and I meet some interested buyers who need a little more time to qualify for a mortgage, the subject of rent to own often comes up. Rent to own is not a legal term, so I won’t be discussing it here. This article is about a lease-purchase agreement, which is what your attorney would call it.
A lease purchase agreement is often confused with a lease option agreement because both arrangements involve people moving into a home prior to a traditional sale, before there is a closing when ownership transfers from the seller to the buyer. But the people who move into a house with a lease purchase
agreement are buyers. They have signed a legal contract agreeing to buy the home and their payments on it are structured in a way that works for them. Usually it means they are paying the seller each month during the first couple years, after which they are obligated to get financing from a mortgage lender or other source. The seller is not obligated to provide the financing until the home is paid off, only for two or three years, and then the buyers pay the seller the balance due on the home.
A lease purchase agreement is nothing more than a written contract to purchase real estate over an extended period of time, typically not exceeding 36 months. It is usually coupled with an agreement to allow the purchaser to occupy the house and pay rent on it while he is completing the purchase.
In contrast, a lease-option agreement is primarily an agreement to rent real estate. That agreement contains a provision granting the renter the option of purchasing the real estate at some point in the future if he so chooses.
Some people call a lease purchase agreement a “rent-to-own” arrangement. That is not completely correct, but it gets the point across and sometimes I use that phrase myself when I’m explaining how to sell my home to possible tenants or buyers. It helps them understand the concept. But then I always follow up with the correct legal terms so that they can take the agreement to their lawyer for review, which is something I always encourage people to do.