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What is rent to own?

Find out about the details of the lease-purchase contract.

Civil Law
What is rent to own?

What does the rental contract with option to buy consist of?

The rental contract with option to buy is a lease contract in which an option to buy clause is added in which the characteristics and requirements of the future sale and purchase of the property are specified.

It is a housing lease in which the owner of the property gives the tenant the possibility of deciding over time to purchase the property.

In other words, this type of contract gives the possibility of acquiring a property that will initially only be rented.

Duration of the contract

Article 9.1 of the Urban Lease Act stipulates that the duration of the contract can be freely fixed by the buyer and the seller.

A situation may arise in which the landlord gives 30 days' notice to the prospective buyer that he does not wish to renew the lease. As explained above, the period for exercising the option to purchase is fixed by the parties, but the period for opting to purchase cannot be longer than the rental period.

What does the option to buy clause have to include?

Below, we list the key aspects that such a clause must include:

1. Explicit agreement of the parties on the option to purchase.

2. The description of the property to be transferred in the future sale and purchase.

3. Estimated price for the purchase of the property.

4. That part of the rents paid during the lease contract, until the exercise of the purchase option, will be discounted from the final price.

5. Time limit for exercising the option, which may cover the entire lease term, but will necessarily expire in the event of a tacit or legal extension of the lease.

Pros and cons for the owner of the lease with option to buy

Here are some of the benefits for the tenant:

- The landlord is guaranteed to pay the lease rent every month, because if the tenant does not pay it, the option to buy disappears due to breach of contract.

- If the tenant does not exercise the purchase option, the landlord would keep the deposit paid and would not have to return any of the amounts paid as rent.

As cons we have:

- If, in the end, the tenant does not exercise the purchase option, the landlord would have lost the duration of the contract, because he cannot sell the property to a third party while the option right is in force.

- During the duration of the contract, the landlord is obliged to respect the contract and cannot rent, transfer or sell the property to third parties.

Advantages and disadvantages for the tenant of renting with option to buy

Some of the advantages to be highlighted are:

- The amount of the rent will accumulate in favour of the tenant as agreed. Thus, the tenant would be "saving" the money from the rents at the same time that he/she is using the property, since it is a property that he/she will be able to buy in a determined period of time.

- The price of the property will go down over time as the amounts that you have agreed [and that will be discounted in the sale price] are already being paid, so that if you are going to ask for a mortgage, the amount requested will be less.

- As you ask for a smaller loan or mortgage, it will be easier to be granted.

- The price is fixed from the beginning so market fluctuations will not affect it.

The only disadvantage is that, if you do not finally buy the property, you will lose the amount paid as a deposit at the time the contract was signed and all the amounts paid as rent.

Execution of the rent to buy option

For this option to take place, it is sufficient that, within the agreed period, as tenant, you notify the seller of your decision to exercise the option to purchase so that the option is understood to have been consummated.

In addition, if you have agreed a specific form of notification in the contract, you must do so as agreed, the most common means being a burofax or notarial deed.

Civil Law

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