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The benefits of lease-option agreements

A lease option agreement is a form of rental contract which is becoming more and more common in the UK but is yet to really take hold in Ireland, where is it also known as a rent-to-buy scheme.

A lease option contract can be used in both residential and commercial real estate. Essentially, the tenant and the landlord agree on a rental arrangement that will allow the tenant the option of purchasing the property after an agreed period of time, generally two to three years.

It is similar in many ways to the lease purchase contract, but crucially different in one way in that it does not compel the tenant to buy the property at the end of the designated time, merely allows them the option to do so.

Typically, when negotiating a lease-option contract, the property owner will ask for a ‘consideration’ from the potential tenant. This is effectively a fee the new tenant pays for the option and can range greatly from a small, token amount to a larger percentage of the property’s value.

The consideration is not a deposit and is generally non-refundable; i.e. if the tenant chooses not to purchase the property at the end of the option, the landlord will retain the money.

The parties to the agreement will then negotiate the price of the house, which will usually, though not always, be set from the beginning of the contract and not changed come the purchase time. They will also negotiate the standard clauses of a lease agreement such as rent, number of occupants, etc.

There are several advantages to the tenant in a lease-option agreement. Often, the tenant will enter the agreement on a property they expect to increase in value over the allotted period; if the price is set at the outset of the agreement then they can buy the property at below market come the end of the option.

The option will suit buyers who do not currently have the funds to buy, perhaps while saving up or waiting for a previous property to sell. They can lease a property safe in the knowledge that they will have the option to buy it in the near future if they so wish.

There are also advantages for the landlord in entering into a lease-option agreement. It may enable him or her to sell a property that they could not otherwise sell while still making money from rent in the meantime.

If you are a property owner or a potential buyer interested in finding out more about the lease-option process, make sure to get in touch with your solicitor today.

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