What Is Rent To Own?
(Renting With An Option To Buy)

In general however, real estate rent-to-own agreements behave much like car lease agreements.

The Eight Main Components Of A Rent-To-Own Agreement:
There are Eight Main Components of a Rent-To-Own agreement and any, or all, of these are subject to negotiation between a tenant/buyer and a landlord/seller.

1. Term
   The Term specifies the length of time a tenant/buyer 1) is required to make rent payments, 2) is allowed to occupy the property, and 3) has the exclusive right (but not the obligation) to purchase the home.

2. Monthly Payment (Rent)
   The monthly payment the tenant/buyer is required to pay to the landlord/seller in order to occupy the residence.

3. Payment Credit
   The Payment Credit (Rent Credit) specifies what portion of each month’s payment (rent) is to be credited towards the purchase price. (if and when the buyer exercises their option to purchase).

4. Option Premium (Non-Refundable, Up-Front Payment)
   The Option Premium specifies how much the buyer is required to pay (up-front) for the exclusive right (but not the obligation) to purchase the property within a specified period of time. This is a non-refundable payment that is typically credited towards the purchase price if the tenant/buyer eventually buys the home. However, if, at the end of the term, the tenant/buyer does NOT purchase the home, the landlord/seller is entitled to keep this money.

5. Purchase Price
   The Purchase Price is the predetermined amount at which the tenant/buyer is permitted to purchase the home at, (or before), the end of the option term. In car leasing terminology, this is called the buy-out price.

6. Option Term
   The Option Term specifies how long the buyer's option to purchase will be in effect. This usually coincides with the lease term.

7. Assignment Of Rights
   Will the tenant/buyer have the right to assign his or her rights to another party? In other words, will the tenant/buyer be allowed to sell his or her option to buy the home or sublet the home to someone else? If so, under what conditions and terms?

8. Renewal or Extension of the Term
   Options have a specified lifespan and unless something is negotiated in advance, at the conclusion of the agreement the tenant/buyer must 1) Purchase the home at the predetermined price or 2) Vacate the home, forfeit the option consideration and forfeit any monthly credits towards the purchase price. If the tenant/buyer wants to extend the term, the landlord/seller could expect an additional option fee. Whether the past accrued monthly rent credits are to be carried over into the new lease/option agreement is something that both parties would need to workout. Whether the conditions for an extension are to be included in the original agreement is something that needs to be negotiated.

In general, as long as both parties are seeking to structure a win-win agreement, a Rent-To-Own agreement is a credible method of transferring ownership of real property that is helpful when there are unusual conditions or circumstances. As long as both parties stand to benefit from the arrangement, it can result in a transfer of ownership that, otherwise, might not have been possible.

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