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Questions on Lease Purchase Agreement Laws

A lease purchase contract is an agreement between the owner and the tenant where the latter has the option to apply his/her rental payment for the purchase of the property. Typically, a tenant may choose a property and seek a landlord to serve as the investor by entering into a lease purchase contract with him. During this period, the buyer/tenant would have exclusive rights to buy the property at a previously agreed upon price. Below are some of the top questions on the subject answered by Legal Experts.

I was in a two-year lease purchase agreement. I received the mortgage approval for $220,000; however, the house is appraised at only $205,000 now. The seller is suing me for $220,000 because I refused to buy the house. Is this legal?

Many lease purchase agreements include an “option” to buy at the end of the contract. However, your contract may be for purchasing the property at the end of two years. In this case, it would appear that you have breached the contract by your refusal to purchase the said property at the agreed price.

When parties enter into a lease purchase agreement, they assume the risk that markets could change and they may find a better bargain at the end of the term of the contract. That, however, would not be valid grounds for terminating the contract. Unless you purchase the property, the seller may be able to pursue damages including lost profits.

When my lease purchase agreement ended, I decided to exercise my option to opt out. I had paid $7000 in upgrades to the house, which the owner refused to reimburse. What are my options?

Your course of action would depend on the exact wording of the lease purchase agreement with the owner. Unless this contract mentions home improvements in your favor, you would have very few legal avenues to recover your money on improvements made during your stay.

I entered into a lease purchase agreement that I would not be able to follow through as my spouse has taken ill since. I wish to terminate the agreement and move out of the house. What steps do I follow?

Typically, the owner must show due diligence in mitigating the damages if the tenant wishes to terminate the agreement. This would mean that the owner must make reasonable efforts to locate a new tenant to move into the house and mitigate the damages owed by you. Else, you would be bound to pay the rent till the end of the lease term. You may help the landlord find a tenant to limit your liability. While the landlord may charge you reasonable expenses for advertising for a tenant and the administrative costs involved in doing so, your liability will cease once the new tenant moves in.

I had a lease purchase agreement with a builder who lost all his property to another real estate investor. However, I have not received a revised contract. Can I terminate the agreement based on this?

Any new owner buying a foreclosed property would effectively “step into the shoes” of the old owner. This means that he/she would be bound by any contractual obligation entered into by the previous owner. In this particular case, the new owner assumes liability for the existing lease contract with you. If you default on the terms of the original contract you would have to bear the liability for doing so.

If you wish to terminate the contract, you may send a written note to the existing owner stating that you will forfeit all previous payments made as rent and “surrender” the property. However, if the contract does not have an “escape clause”, the new owner would be within his rights to enforce the contract.

Can the down payment be protected from creditors by the Homestead Act on a lease purchase agreement?

Homestead protection cannot be claimed in this case as you are not the owner of the property unless it is legally transferred to you. Depending on how the contract is worded, the funds paid to the seller may belong to the seller of the property. Again, depending on the contract, if the funds are paid to the seller for value as non-refundable, the creditor may have no rights to claim it. It is advisable to speak to a local attorney to understand the terms of your contract.

In a lease purchase agreement, the tenant pays the landlord/seller a monthly rental amount which typically covers the mortgage amount owed by the latter. A portion of the rent amount may or may not be applied for the purchase of the property depending on the contract. Lease purchase agreements do not always include a lease option, which is a unilateral contract not obligating the renter to purchase the property at the end of the lease term. It is always sensible to seek the opinion of a Legal Expert before entering into a lease purchase agreement so that you may secure your interests.
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