Lease-Purchases: Dangers to the Buyer

Lease purchases are homes, condominiums and other residential properties that are purchased under the lease-to-purchase contract. The lease-to-purchase contract opens the possibility of home ownership for those who don't necessarily afford it. Under its terms, the property owner offers the property for rent, with part of the rent going towards the purchase of the property in question. While this isn't necessarily a bad deal, it does carry several potential dangers that the would-be home owners should be aware of before they sign their lease-to-purchase contracts.

Lease-to-Purchase Option vs Lease Purchase Sale

There are two types of lease-to-purchase contract - the lease to purchase option and the lease purchase sale. The former does not require the potential buyer to actually purchase the property once the rental period ends. The potential buyer wouldn't be able to get back any of the money he or she put towards the purchase, but, should something go wrong, he or she would at least have an escape option. Meanwhile, the later effectively traps the potential buyer into buying the house regardless of what happened between the time the contract is signed and the end of the rental period. The potential buyer is legally required to abide by the terms of the contract. That is why the potential buyer must make sure he or she understands what type of lease-to-purchase he or she is being asked to sign.

Dishonest Property Owners

In some cases, the lease-to-purchase contract may give the property owners some wiggle room when it comes to following it's terms. It may have a stipulation that allow them to cancel the contract if they can sell their property in a more conventional way. Depending on the contract's language, the potential buyers may not be able to get their money back. As with above, potential buyers can avoid this issue by carefully reading the contract. If there is any doubt, they should consult their lawyers.

Ability to Pay Rent

In both types of lease-to-purchase contracts, if the potential buyers fail to make monthly rental payments, the property owners have a right to evict them. This, in turn, renders the contract null-and-void. Not only do would-be buyers lose the money they already paid, but they will be left without a place to live. In some cases, the contracts may allow the property owners to sue for damages (the idea being that, by failing to pay rent, the potential buyers caused property owners financial harm).

This is why anyone who is thinking about singing a lease-to-purchase contract should first figure out whether or not he or she can afford to pay rent during the entire rental period. If possible, a property owner should try to negotiate for a fixed rental rate - otherwise, the property owner is free to raise the rent on monthly and/or annual basis.

Property Damage

For many property owners, the lease-to-purchase contract is often something they do as a last resort. In the current market, many property owners have trouble selling their properties. Entering into a lease-purchase contract allows them to earn some income off the property and provides a certain measure of assurance that the property will be purchased after the rental period ends.

The problem is that, in many cases, property owners don't bother to maintain the property they don't use, or, at least, to give it as little maintenance as possible. When the potential buyers move in, they discover that the property may not have heat, or good drinking water, or working electric utilities. In some cases, the damage is not readily apparent until several months down the line. As landlords, the property owners are obligated to fix the damage, but it's still an inconvenience to the potential buyer.