7. Legal aspects of Rent‐to‐Own ‐ Lease Purchase Agreement. - ZoWy

Legal aspects of Rent‐to‐Own ‐ Lease Purchase Agreement.

Agenda:

  • • Understanding what legal document each tenant‐buyer is singing.
  • • Understanding legal process.
  • • What the Lease Purchase Agreement is

The central aspect of being a tenant‐buyer is a long‐term tenant with the legal right to buy the property at the agreed time.

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Therefore, the following legal document is relevant:


  • Lease Purchase Agreement.
    In a standard Lease Purchase Contract, the two parties agree to the deposit payment, monthly payments, and the term. The tenant‐buyer can buy the property for a fixed price. The agreed deposit is determined by the tenant buyers’ budget and the clients' credit history and affordability regarding buying the property. The worse credit history and the smaller affordability, the higher deposit is required. Conversely, if a higher deposit cannot be met, then the monthly capital payments increase.

    The term of the Lease Purchase Agreement is as short as possible and typically aims to be two years. However, due to personal circumstances like credit history, access to capital etc., it can be longer. The longer‐term, the higher the agreed fixed purchase price. Monthly payments consist of the monthly contractual payment and a capital element. The monthly contractual payment is an average rent. Capital element typically around 10‐15% of standard rent. The capital element can be higher if required to accumulate a higher deposit for the purchase or ignored altogether if the deposit is high to begin with.

    At the end of the Lease Purchase Agreement term, the tenant/buyer has the right to purchase the house. The lump sum accrued from the initial deposit and the capital element is only released to the buyer as a deposit on the house should the tenant/buyer decide to proceed with the purchase. The tenant/buyer is responsible for securing the necessary mortgage loan to finalize the home's purchase. If the financial picture prohibits this, the tenant‐buyer can simply sell the property on the open market to refund the deposit and capital element of monthly payments. Suppose the tenant/buyer is unable to purchase the house due to a lack of financing. In that case, the tenant and landlord can agree to extend the option period or end the contract with the tenant moving out and seeking other renters or buyers. Suppose the tenant‐buyer neither completes the purchase nor sells the property to the third party. In that case, the deposit and monthly capital payments are lost.

    Tenant‐buyer rights are mirrored to the rights and responsibilities of the standard tenant of AST ‐ Assured Shorthold Tenancy. Similarly, owner responsibilities are reflected in obligations held by landlords with AST tenants.


Further reading:

Financial aspects and how much does it cost.

Agenda:

  • • Have a good understanding of all your cost associated with Rent‐to‐Own.
  • • Have a common knowledge about costs related to a property purchase in the UK.
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Therefore, the following legal document is relevant:


  • Lease Purchase Agreement.
    In a standard Lease Purchase Contract, the two parties agree to the deposit payment, monthly payments, and the term. The tenant‐buyer can buy the property for a fixed price. The agreed deposit is determined by the tenant buyers’ budget and the clients' credit history and affordability regarding buying the property. The worse credit history and the smaller affordability, the higher deposit is required. Conversely, if a higher deposit cannot be met, then the monthly capital payments increase.
    The term of the Lease Purchase Agreement is as short as possible and typically aims to be two years. However, due to personal circumstances like credit history, access to capital etc., it can be longer. The longer‐term, the higher the agreed fixed purchase price. Monthly payments consist of the monthly contractual payment and a capital element. The monthly contractual payment is an average rent. Capital element typically around 10‐15% of standard rent. The capital element can be higher if required to accumulate a higher deposit for the purchase or ignored altogether if the deposit is high to begin with.
    At the end of the Lease Purchase Agreement term, the tenant/buyer has the right to purchase the house. The lump sum accrued from the initial deposit and the capital element is only released to the buyer as a deposit on the house should the tenant/buyer decide to proceed with the purchase. The tenant/buyer is responsible for securing the necessary mortgage loan to finalize the home's purchase. If the financial picture prohibits this, the tenant‐buyer can simply sell the property on the open market to refund the deposit and capital element of monthly payments. Suppose the tenant/buyer is unable to purchase the house due to a lack of financing. In that case, the tenant and landlord can agree to extend the option period or end the contract with the tenant moving out and seeking other renters or buyers. Suppose the tenant‐buyer neither completes the purchase nor sells the property to the third party. In that case, the deposit and monthly capital payments are lost.
    Tenant‐buyer rights are mirrored to the rights and responsibilities of the standard tenant of AST ‐ Assured Shorthold Tenancy. Similarly, owner responsibilities are reflected in obligations held by landlords with AST tenants.

Further reading:
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