Lease-to-own Agreement

A lease-to-own agreement is a rental agreement where the tenant rents the property with the option to buy it at the end of the lease term. These agreements make it easier and more enticing for the tenant to buy your rental property. The agreements are typically used in the following two situations:

  • The landlord is having a hard time selling the rental property
  • The landlord already purchased a new home and is looking to rent or sell the old house

How does a Lease-to-Own Agreement Benefit Landlords? 

Landlords benefit from lease-to-own agreements for a few reasons. First, it is most beneficial to landlords who are looking to sell the property soon. Second, landlords want responsible tenants and tenants who sign these agreements tend to take better care of the property because they are looking to possibly own it. Third, if a tenant is looking to sign a lease-to-own agreement then this means he or she is financially ready for a down payment and a mortgage. This means he or she is very likely financially responsible and will likely be able to make rent payments on time every month.

How does a Lease-to-Own Agreement Benefit Tenants? 

Lease-to-own agreements are most ideal for tenants who want to buy, but are not completely sure about buying yet. In other words, they want the option to buy, but don’t want to be locked into it yet. Rent credits also help tenants put aside money each month to go toward their down payment.

If a lease-to-own agreement will benefit you and your tenants, get started with Rocket Lawyer’s Lease-To-Own Agreement.

Lease-to-Own Rental Terms

There are certain aspects of a lease-to-own rental agreement that operate differently from a normal rental lease. Here are the following rental terms to specify in your lease-to-own agreement:

Length of Rental Lease

The length of the lease is important because the tenant will have the option to buy the property at the end of the lease. The lease end date is also potentially the purchase date.

Price of Property 

Typically, the price of the property is set when you sign the lease-to-own agreement. Landlords and tenants who are entering a lease-to-own agreement should discuss what will happen if the value of the home changes significantly during the lease term.

Option Fee

The option fee is paid by the tenant to secure the option to buy the home at the end of the agreement. Option fees are typically non-refundable.

Rent Credit

This is a monthly fee that goes toward the tenant’s down payment if the tenant chooses to buy the home. This fee is typically non-refundable, so if the tenant chooses not to buy the property, then the landlord keeps the money.

What Happens if the Tenant Doesn’t Choose to Buy?

If the tenant chooses not to buy the property, then typically he or she loses the option fee and rent credit.

What Happens if the Tenant Chooses to Buy the Rental Property?

If the tenant buys the property at the end of the lease term, then he or she will receive the rent credits back. Rent credits are meant to go toward the down payment for the house.

Next Steps 

If you’re looking to create and sign a lease-to-own agreement, read our Complete Guide to Rental Leases. You’ll learn the ins and outs of rental leasing including:

Get started with Rocket Lawyer’s lease-to-own agreement.

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Also published on Medium.

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