Real Estate Rent to Own Agreement

What is a rent to own agreement?

A rent to own agreement is a legally binding contract that combines elements of a traditional lease with an option to purchase the property at a later date.

The parties involved in a rent to own agreement template are the landlord and the tenant. A landlord is an owner of the leased premises, who could be an individual, organization, or business. If a property is managed by a property management company, in that case, a property manager can sign this agreement.

A tenant under a rent to own agreement sample is an individual or business who wishes to rent the property with the right to purchase it once the lease expires.

Having a well-drafted rent to own home lease agreement could be helpful in various circumstances:

• Case No. 1. When a landlord has problems selling the property on the market, therefore he or she decides to rent it out with an option of further purchase.
• Case No.2. When a tenant cannot get a mortgage at the moment and therefore needs to improve their credit score rating.
• Case No. 3. When a tenant is willing to try to live in the property first before deciding to purchase it.

How to draft a rent to own agreement sample?

Drafting any legal document from scratch could be a challenging task for everyone, including lawyers. The complexity of rent to own homes agreement forms lies within the combination of two documents—a lease of real estate and a sale-purchase of real estate. Therefore, it is vital to ensure clear wording and compliance with applicable laws.

Below we suggest the list of most essential elements every simple rent to own agreement should include:

Description of the Rental Property

A rent to own agreement template must begin with a comprehensive description of the leased property, including:

• property’s type (e.g., residential or commercial, office, apartment);
• size and internal configuration; and
• detailed address.

It is not common for the home rent to own agreement contract to include the list of fixtures, appliances, or furniture inside the property. Usually, parties include this list in a separate addendum to the existing agreement.

Duration of the Lease

Every rent to own agreement contract must set out the start and end dates of the lease. The lease may commence on the date of signing this agreement by both parties or on the later date. Neither federal nor state laws define the required minimum or maximum period of the lease with the right to purchase.

We always recommend our users to address three important legal considerations below in the text of the contract:

• First, that the tenant has an exclusive right to purchase the leased property. It means that during the lease period the landlord cannot sell or gift such a property to a third party without a tenant’s prior written consent.
• Second, the tenant receives the right to purchase the property once the lease ends. It is not possible to make a buyout before the end of the lease.
• Third, the parties have to decide what happens if the tenant refuses to purchase the property at the end of the lease. In that case parties can either prolong the lease or end it.

Rental Payments

Same as for the classic rental agreement, a sample rent to own agreement lays out the amount of the rental payments. Therefore, the provisions of the contract have to include:

• amount of the rental payment;
• frequency of rental payments (e.g., weekly, monthly, or quarterly);
• late fees (in case a tenant fails to pay on time);
• acceptable payment methods.

Security Deposit

Even a simple rent to own agreement requires a tenant to provide a security deposit. This is a sum of money aimed to compensate a landlord in case of the lease’s breach by a tenant (e.g., damage of the property, failure to pay the lease on time). Thus, the text of a document should define:

• exact amount of the security deposit;
• date on which the deposit shall be transferred to the landlord (in any case not later than the first day of the lease);
• who shall keep the deposit (usually parties designate a special financial institution to keep a deposit secure);
• conditions for the deposit’s deductions;
• conditions for the return of the deposit.

The local regulation of every state stipulates a maximum amount for a security deposit a landlord could charge. In some states the deposit cannot exceed rental payments for two months, while in others it is limited by a maximum cap.

Compliance with State-by-State Regulation

A rent to own agreement is a state-specific legal document, which means that each state law provides a detailed regulation for the lease and purchase of the property located in that state. Therefore, compliance with applicable state law is essential for a document’s validity.

For instance, if a tenant breaches the lease in the District of Columbia, a tenant should have an additional 30-day period to cure such a breach to avoid a contract’s termination by the landlord. At the same time in Delaware, a tenant should have only 7 days to cure the contract’s violation or breach to avoid the contract’s further termination.

Our rent to own agreement form allows you to customize a legal template for specific local legislation of your state.

Purchase Option

The key difference between a rent to own home agreement contract and a general lease agreement is a purchase option. It means that at the end of the lease, a tenant shall have the right to purchase leased property. Therefore, the text of the contract needs to define:

• purchase or sale price;
• if the sum of the security deposit could be credited to the purchase price;
• if the early paid rental payments could be credited to the purchase price;
• no obligation to purchase (i.e., a tenant has a right and not a contractual duty to make a purchase of the leased property); and
• financing disclaimer (i.e., a tenant shall not guarantee that he or she will have enough money to purchase the property in the future).

We always remind our users that the purchase option clause is separate and does not relate to the rental payment clause.

Termination Clause

The rent to own agreement could be terminated by either party without any cause. To do so, a tenant or a landlord should send a prior written termination notice to another party. A notice period varies depending on the applicable state law regulation. For instance, in Arkansas you may need to wait at least 45 days to end the contract, while for California the minimum notice period constitutes 30 days only.

A notice of termination is an official notification about the intention to end the contract. That’s why it shall be sent in a special way, designated by the sample rent to own agreement. Either party can deliver such a notice in person or send it via mail or email.

How to customize a rent to own agreement form at FasterDraft?

To get a fully customized legal document, follow a few easy steps below:

1. Click the “Create Document” button.
2. Answer simple questions.
3. Select a format for the rent to own agreement template—PDF or Word.
4. Make a payment.
5. E-sign, download, and use the document.