Lease Purchase Explained

Jump to Section

Need help with a Lease Purchase Agreement?

Post Project Now

Post Your Project (It's Free)

Get Bids to Compare

 Hire Your Lawyer

What is a Lease Purchase?

A lease purchase is a formal contract between a renter and a seller that combines the elements of a right of first refusal and a rental contract into one. These agreements are common among the lease-to-own community since they offer the benefits of renting combined with the promise that the tenant will be the first one eligible to put in an offer when the property goes up for sale.

Lease purchase agreements define a certain lease period in which a potential buyer has the right to occupy a property. Lease periods are determined at the time the contract is signed and can serve to give either party time to get their affairs in order, or sometimes even allows the buyer to gain some equity in the property before purchasing it.

How a Lease Purchase Works

Lease purchase agreements are a great tool for buyers and sellers to use to facilitate the sale of a property before it goes on the market. Although the process might seem intimidating, the reality is that it’s easy to understand.

Lease purchase agreements serve to allow tenant-buyers and sellers time to prepare for the sale of a property. They can be utilized by buyers to secure a property while they work on their credit score, save money, or get other affairs in order. Buyers find them helpful to secure the sale of a property to an interested party who might not otherwise qualify due to their inability to qualify for a mortgage note.

Lease purchase agreements consist of two separate real estate contracts : a rental agreement and a contract for sale.

The rental agreement includes provisions such as:

  • Monthly rent and due dates
  • Who is responsible for the maintenance of the property
  • Deposit requirements
  • Pet regulations

The contract for sale, on the other hand, covers the following:

  • Parties involved in the sale
  • Property selling price
  • Down payment requirements
  • Payment methods

Lease purchase agreements also include cross-default provisions which serve to protect both parties to a contract. These provisions entail that if the rental agreement is violated, the contract for sale is, and vice-versa.

Check out this article to learn more about how lease purchase agreements work.

Meet some lawyers on our platform

Namrita N.

3 projects on CC
View Profile

Paul S.

5 projects on CC
View Profile

Terence B.

25 projects on CC
View Profile

Jaren J.

1 project on CC
View Profile

How to Structure a Lease Purchase

Whether you’re creating a lease purchase agreement or entering one, it’s important to know how to structure it. Organizing the document properly ensures the enforceability of the real estate purchase agreement and lease purchase agreement.

Here is a breakdown of how to structure a lease purchase agreement:

Step One: Determine Lease Agreement Length

One of the most important aspects of a lease agreement is how long it will last. Whether you need to allow time to lower a debt-to-income ratio or address negative items on a credit report, the amount of time allowed must be clearly defined. Lease agreements should never exceed one year.

Step Two: Consider a Security Deposit

Security deposits help to protect against any damage done to property while a tenant occupies it. Requiring a security deposit ensures that if the lease agreement falls through and repairs are needed beyond normal wear and tear, the costs are covered.

Step Three: Tax and Insurance Responsibility

The seller should maintain the responsibility to pay any insurance and taxes on the property for the duration of the lease purchase agreement. This way, sellers can ensure that all costs associated with the property are paid until the sale takes place. Costs can be recuperated for these items by including an extra cost in the monthly rent to cover them.

Step Four: Include Rent Credit Details

During the time a buyer-tenant resides in the home before purchasing it, sellers can apply a portion of the monthly rent toward equity in the home. It’s important to make sure the lease agreement explicitly states how much of the rent goes toward equity each month.

Step Five: Address Miscellaneous Terms

Any miscellaneous terms of the contract such as home improvement requirements, option price, and fair market value should be included in the lease purchase agreement. This solidifies the contract’s completeness and further protects both parties of the agreement.

Here is an article where you can learn more about how to structure a lease purchase agreement.

What’s the Difference Between a Lease Purchase and a Lease Option?

Even though lease purchases and lease options sound similar, they are not the same thing. Understanding the differences between these agreements will empower you to make the best decision for your future. After all, purchasing a home is one of the biggest commitments you will make in your lifetime.

Here is an overview of lease purchases and lease options and how they are different:

Lease Purchase

A lease purchase entails that at the end of the designated leasing period, the buyer-tenant intends to purchase the rental property. This means that once the first portion of the agreement, the rental agreement, concludes, the buyer-tenant and the seller immediately migrate to the second contract, the purchase agreement. The sale is a sure thing, as long as none of the terms of either agreement is violated.

Lease Option

A lease option is like a lease purchase since it also consists of two contracts. The first contract, the rental agreement, is identical to that of a lease purchase. However, the second is called an option agreement. Option agreements entail that the buyer-tenant has a choice to purchase the property once the rental agreement period concludes after paying an option fee. With a lease option agreement, the buyer-tenant is not obligated to purchase the property; this is the most significant difference between the two.

Get more information about the differences between a lease purchase and a lease option by reading this article .

Lease Purchase Agreements

Lease purchase agreements are handy tools that non-qualified buyers can use to “lock in” property before it goes up for sale to the public. During the period of the rental agreement, buyer-tenants can take time to get personal affairs in order, reduce their debt-to-income ratio, and even obtain equity in the property in which they reside.

Lease purchase agreements are legally binding contracts that obligate buyer-tenants to purchase the property at the end of their rental agreement, which should last no more than one year.

Ultimately, choosing to go into a lease purchase agreement with a seller is a great way to secure your dream property even if you aren’t financially ready to qualify for a mortgage note on it. If you don’t want to wait before securing a new home for you and your family, this path to homeownership is one of the best legally sound ways to do it.

See an example of a lease purchase agreement by viewing this webpage .

Get Help with a Lease Purchase

If you need help with a lease purchase agreement, real estate lawyers can help. Whether you need to draft a new contract, modify an existing one, or want to talk to someone who knows the ins and outs of these contracts, you need a professional on your side.

Post a project on ContractsCounsel today to get in touch with experienced real estate lawyers who specialize in lease purchase agreements and are ready to give you the assistance you need today.

How ContractsCounsel Works
Hiring a lawyer on ContractsCounsel is easy, transparent and affordable.
1. Post a Free Project
Complete our 4-step process to provide info on what you need done.
2. Get Bids to Review
Receive flat-fee bids from lawyers in our marketplace to compare.
3. Start Your Project
Securely pay to start working with the lawyer you select.

Meet some of our Lawyers

ContractsCounsel verified
Founder
6 years practicing
Free Consultation

I am a California-barred attorney specializing in business contracting needs. My areas of expertise include contract law, corporate formation, employment law, including independent contractor compliance, regulatory compliance and licensing, and general corporate law. I truly enjoy getting to know my clients, whether they are big businesses, small start-ups looking to launch, or individuals needing legal guidance. Some of my recent projects include: -drafting business purchase and sale agreements -drafting independent contractor agreements -creating influencer agreements -creating compliance policies and procedures for businesses in highly regulated industries -drafting service contracts -advising on CA legality of hiring gig workers including effects of Prop 22 and AB5 -forming LLCs -drafting terms of service and privacy policies -reviewing employment contracts I received my JD from UCLA School of Law and have been practicing for over five years in this area. I’m an avid reader and writer and believe those skills have served me well in my practice. I also complete continuing education courses regularly to ensure I am up-to-date on best practices for my clients. I pride myself on providing useful and accurate legal advice without complex and confusing jargon. I look forward to learning about your specific needs and helping you to accomplish your goals. Please reach out to learn more about my process and see if we are a good fit!

ContractsCounsel verified
Contract and IP Attorney
3 years practicing
Free Consultation

I am a NY licensed attorney experienced in business contracts, agreements, waivers and more, corporate law, and trademark registration. My office is a sole member Law firm therefore, I Take pride in giving every client my direct attention and focus. I focus on getting the job done fast while maintaining high standards.

ContractsCounsel verified
Attorney
25 years practicing
Free Consultation

A twenty-five year attorney and certified mediator native to the Birmingham, Alabama area.

ContractsCounsel verified
Attorney/Owner
10 years practicing
Free Consultation

I absolutely love helping my clients buy their first home, sell their starters, upgrade to their next big adventure, or transition to their next phase of life. The confidence my clients have going into a transaction and through the whole process is one of the most rewarding aspects of practicing this type of law. My very first class in law school was property law, and let me tell you, this was like nothing I’d ever experienced. I remember vividly cracking open that big red book and staring at the pages not having the faintest idea what I was actually reading. Despite those initial scary moments, I grew to love property law. My obsession with real estate law was solidified when I was working in Virginia at a law firm outside DC. I ran the settlement (escrow) department and learned the ins and outs of transactions and the unique needs of the parties. My husband and I bought our first home in Virginia in 2012 and despite being an attorney, there was so much we didn’t know, especially when it came to our HOA and our mortgage. Our real estate agent was a wonderful resource for finding our home and negotiating some of the key terms, but there was something missing in the process. I’ve spent the last 10 years helping those who were in the same situation we were in better understand the process.

ContractsCounsel verified
Principal and Founder
7 years practicing
Free Consultation

Samantha has focused her career on developing and implementing customized compliance programs for SEC, CFTC, and FINRA regulated organizations. She has worked with over 100 investment advisers, alternative asset managers (private equity funds, hedge funds, real estate funds, venture capital funds, etc.), and broker-dealers, with assets under management ranging from several hundred million to several billion dollars. Samantha has held roles such as Chief Compliance Officer and Interim Chief Compliance Officer for SEC-registered investment advisory firms, “Of Counsel” for law firms, and has worked for various securities compliance consulting firms. Samantha founded Coast to Coast Compliance to make a meaningful impact on clients’ businesses overall, by enhancing or otherwise creating an exceptional and customized compliance program and cultivating a strong culture of compliance. Coast to Coast Compliance provides proactive, comprehensive, and independent compliance solutions, focusing primarily on project-based deliverables and various ongoing compliance pain points for investment advisers, broker-dealers, and other financial services firms.

ContractsCounsel verified
Chief Legal Officer
13 years practicing
Free Consultation

Experienced General Counsel/Chief Legal Officer

ContractsCounsel verified
Attorney
1 year practicing
Free Consultation

Attorney Gaudet has worked in the healthcare and property management business sectors for many years. As an attorney, contract drafting, review, and negotiation has always been an area of great focus and interest. Attorney Gaudet currently works in Massachusetts real estate law, business and corporate law, and bankruptcy law.

ContractsCounsel verified
Managing Partner
2 years practicing
Free Consultation

Benjamin is an attorney specializing in Business, Intellectual Property, Blockchain, and Real Estate.

ContractsCounsel verified
Attorney
8 years practicing
Free Consultation

Ayelet G. Faerman knows what influencers mean to brands today. With experience as legal counsel for a beauty brand for over 5 years, and overseeing multiple collaborations, Ayelet has experienced the rise of influencer marketing. As the founder and managing partner of Faerman Law, PA her practice focuses on influencer relations including a specialization in contract negotiations.

ContractsCounsel verified
Attorney
23 years practicing
Free Consultation

I am a general practice lawyer with 21 years of experience handling a wide variety of cases, both civil and criminal

ContractsCounsel verified
Trademark and Business attorney
9 years practicing
Free Consultation

Melissa D. Goolsarran Ramnauth, Esq. is an experienced trial-winning trademark and business attorney. She has represented large businesses in commercial litigation cases. She now represents consumers and small businesses regarding federal trademarks, contracts, and more. Her extensive litigation knowledge allows her to prepare strong trademark applications and contracts to minimize the risk of future lawsuits.

Find the best lawyer for your project

Browse Lawyers Now

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call