The lease contract with purchase option

The lease contract with purchase option has become a highly demanded formula as it isan affordable way to buy a house. The popularity acquired by these contracts is largely due to the difficulties involved in getting a loan today. This allows the tenant to reside in the house that he/she wants to buy for a certain time. They pay monthly a rent, postponing during that period the purchase. If the purchase is made, the amounts paid as rent during the previous period will be totally or partially discounted form the purchase price.

What are the features of the lease contract with purchase option?

On the one hand, the tenant can live on rent with the benefit of deducting from the final price what was previously paid. During the leasing you have a right of reservation on the property. On the other hand, it also benefits the landlord or landlord, as he will sell the property more easily.

Since the lease contract with purchase option consists of a common lease to which a purchase option clause is incorporated, the conditions of both one and the other may vary:

  • Fees or Monthly payments: The rental fee is the same as in a normal contract. Although it implies a higher disbursement by having to pay an initial premium amount, which is usually greater than a bail. Unlike a bail, if the tenant does not finally decide to buy the home, he will lose all of it.
  • Rental Duration: Is usually less than 5 years, but it may be superior depending on the type of property.
  • Purchase Price: It is fixed in the contract itself. It can be frozen during all the time of the rent. It can also be offered at a discount if the purchase option is exercised during the first year, or updated according to inflation from the first year.
  • Reduction: Previous rent payments are usually discounted from the final purchase price. They are usually discounted in a downward percentage as the years go by, to motivate the tenant to exercise the option of purchase as soon as possible.

Benefits of the lease contract with purchase option

In this section we will answer several questions: What are the economic advantages for the tenant and owner of the lease-to-purchase contract? Do you have the right to a tax deduction? What is the tax issue of the final purchase?

A) For landlord (owner)

      • Enjoys the incomes from renting the house.
      • The house is kept rented to the future buyer
      • Can set a term of maximum 5 years to exercise the option to purchase.
      • You can also enjoy a reduction in the:
      1. 60% in income tax for the income received, if the rented property is destined to housing,
      2. Up to 100% if the tenant is between 18 and 30 years old and his net income from work or economic activities is higher than the IPREM.

B)  For the tenant

      • Enjoy a home you want to buy without having to immediately face the payment of its price. This is very interesting when you don’t have money to pay the entrance. The lease-to-buy contract provides time to seek financing, saving money or waiting for your economy to improve.
      • You do not completely lose the paid rent fees, which can be deducted in the percentage fixed in the contract.
      • In addition, he can enjoy tax advantages. He only have to comply with the requirements established by the income tax law.

Finally, it is important to point out that once the tenant decides to exercise the option to purchase, the purchase process will be carried out as a general sale.

Have you any doubts? We encourage you to consult our real estate law experts, who will help you to create the proper contract.