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Lease Option Questions

A lease option gives an individual the opportunity to lease or rent a property with the option to purchase the property at a later date. When the individual signs the lease-option, the future price of the property will usually be agreed upon and fixed at that time. A specified sum is generally paid to the owner as an up-front payment to purchase the property. Sometimes, the monthly payments are larger than usual. The money over and above the normal amount can be used to buy the option. In a few cases, the individual may be able to use the option money as down payment for the later purchase of the property.

Listed below are a few questions answered by real estate lawyers on lease options.

Can a person who is not the owner of a house negotiate a lease option to buy?

If a landlord enters into a contract with you without power of attorney or other written authority to legally represent the owner, then the lease would be considered void. Also, you would be able to sue for damages based on a claim for fraud.

My husband and I signed a lease option to buy two years ago. Since the housing market has dropped since then, do we still have to pay the value of the house mentioned in the contract or the new value which is much lower?

Under normal circumstances, you would be bound by the signed agreement but the sellers may be willing to renegotiate the sales price because of the housing crisis. It might be fortunate that you didn’t buy the place before the market crashed. However, if the sellers are not willing to renegotiate the price, you may not want to exercise your option now.

If a condo is a single unit which forms part of an HOA and there is a lease option to purchase it, would the lessee be considered the "owner" of this unit during the duration of the lease/contract?

Yes. When you have a lease with an option to buy, until the tenant actually exercises the option and takes title, the current landlord would remain the owner and retain title of the condo.

In New York, do you have to be a licensed agent to conduct lease options on residential properties?

No, you wouldn’t need a real estate license to work out lease options with prospective sellers or buyers. However, if you were representing somebody else in your dealings, and not negotiating on your own behalf, you would need a license.

We can rent out our home but are considering a lease option as we know we will have a buyer soon. Do you think this is a smart thing to do?

You are probably better off leasing the house without a lease option. That way, you don’t need to limit yourself to one buyer. You can lease it and still keep it listed for sale so that you have a wider range of buyers to pick from.

A lease option holds many benefits for the seller. A few of these are that the seller can often sell the house at a higher price than in a normal transaction. The seller may even be able to sell in a slow market and can collect larger monthly payments than he or she would with a normal lease, which increases cash flow and helps with mortgage payments. Finally, the seller also gets up-front option money which he or she can keep if the buyer chooses not to exercise the option.
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