You may be wondering if there’s a difference between a
lease purchase agreement and a lease option agreement. Well, although they sound similar, they are not. As a buyer you would want to be sure to understand how they differ, and as a seller or landlord you want to exercise caution as well. As I am giving consideration to my options and selecting how to
sell my home when I have potential buyers who need a year or so to qualify for a mortgage, we usually discuss rent-to-own, which is a rather common phrase but not exactly a legal term. A lawyer would call it a lease purchase agreement, so that’s what I’m calling it in this article.
People often confuse a lease option agreement with a lease purchase agreement because both involve tenants or buyers moving into a home before closing, which is when ownership actually transfers from the seller to the buyer. Here’s the important difference - people who move into a home having signed a lease purchase agreement are buyers because their contract is set up as structured payments to buy the home. Generally it means they are making monthly payments to the seller for one or two years while they get financing to buy the home.
Let’s go over this again - a lease purchase agreement is a written agreement to purchase a home over time, usually two or three years, and it includes as part of the agreement a clause allowing the buyer to live in the house making lease payments while he arranges to obtain financing to pay off the seller.
But a lease-option agreement is primarily an agreement to rent a home, and the agreement contains a clause granting the renter the option of purchasing the real estate by a certain point in the future.
Although a lease purchase agreement is sometimes referred to as a rent-to-own agreement, that term is not really correct. But people understand that phrase and sometimes I’ve used it myself when I’m trying to explain how to sell my home to interested buyers. When I say rent-to-own it helps them grasp the topic, but then I use the correct legal terms while encouraging them to take the agreement to an attorney to check it out.