What is a rent-to-own purchase option?

Under a rent-to-own lease agreement, the tenant has the option of having a percentage of the rental payments credited toward the eventual purchase price of the property. To receive this option, the tenant must normally pay an upfront fee when signing the agreement as well as abide by certain conditions and rules during the agreement.

After exercising the purchase option by paying the upfront fee, the tenant must be sure to make payments on time and in full for the payments to be credited toward the purchase of the premises. The tenant must also remain an occupant for the minimum number of months specified in the agreement in order to be able to exercise the purchase option. This helps ensure that the tenant makes regular payments and makes the cash flow more predictable for the landlord.

Regardless if the tenant eventually decides not to purchase the property or fails to abide by the terms of the agreement, the tenant will still not be entitled to a refund of any rental payments credited toward the purchase price. However, if the landlord is unable to convey good and marketable title when the tenant exercises the purchase option, then the landlord must refund the initial fee paid for the purchase option.

Finally, the landlord also has the right to sell the property to another party at any time; however, the new buyer must honor all the terms of the agreement.

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