Lease with Option to Buy

The lease -purchase is a type of contract which is rented a well (usually property) for a specified time. When said term ends, the lessee has the alternative of acquiring that asset at a previously established price.

That is to say, this type of rental is an agreement that has the peculiarity that the property can be acquired at maturity. Thus, both parties set a fee for a possible future transaction.

It should be noted that this type of contract is more typical of the real estate market. Thus, the tenant has a period of time during which the rental is carried out, for example, five years, before the sale materializes.

Another important piece of information is that the lessor usually charges an initial amount for granting the purchase option. In many cases, this amount is discounted (from the price of the asset) if the transaction goes through. Otherwise, there is no refund.

Advantages and disadvantages of leasing with option to buy

Among the advantages of leasing with an option to buy, the following stand out:

  • For the tenant, an advantage is that the rents that he is paying are like an investment for the future purchase of the real estate.
  • If you choose to acquire the home, the tenant will already know what the characteristics of the asset are, that is, he is buying something that he knows.
  • The tenant will also benefit if he has agreed a price that ends up being lower than the market at the time of making the purchase.
  • For the landlord, this type of contract is an alternative if he cannot find a buyer for the property and has no urgency to sell the property. That is to say, an economic benefit is perceived without giving up the future sale.
  • The owner is receiving as an advance payment for the sale of the property.

However, there are also disadvantages:

  • For the owner, a point against this type of contract is that the purchase is not secure. That is, if your intention is to sell the property, this may not happen if the tenant finally decides not to acquire the property.
  • The landlord will be harmed if the rise in property prices is higher than expected, as he will not be able to take advantage of this rise.
  • For the tenant, the disadvantage is that, if the purchase is not executed, the investment with the rent payments would somehow be lost (including the initial amount disbursed).
  • The tenant could be obliged to pay taxes for the rent and when executing the purchase option (it all depends on the legal framework of the country).

Difference between leasing and leasing with option to buy

One of the main differences between leasing and leasing with an option to buy is that the former exists for both movable and immovable property.

Likewise, in the leasing we must take into account that a third party participates (in addition to the owner and the potential buyer) who we can call the financier. This is usually a leasing company or financial leasing company that acquires the property at the request of whoever wishes to occupy it, and leases it to them in exchange for a periodic payment.

On the other hand, in the lease with the option to buy, only the lessor and lessee participate.