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What is the rent with option to purchase?

Posted by Michel B. on 02/10/2019

The rental with the right to purchase is a double or mixed contract consisting of two subcontracts, one for rent and the other for sale. This modality allows the tenant to live leased in the house for a certain time. After the deadline, you will have the right to buy it for an agreed price and from which the rental income paid so far will be deducted.

According to the Supreme Court, it is “a pre-contract –in principle unilateral–, by virtue of which, one party grants the other the exclusive power to decide on the conclusion or not of the main contract of sale, to be carried out in a a certain period and under certain conditions, and may also be accompanied by the payment of a premium by the opting party ».

It is, therefore, a type of contract that can be beneficial for both parties: for the tenant because he can live on rent while investing in a possible purchase; for the landlord because, while the tenant does not buy, he has his rental home with the premium as insurance.

These types of agreements do not have to mean a higher or lower rental fee than in a normal contract, but it does imply a higher initial disbursement by having to contribute a premium for the option to purchase, which is usually much greater than the amount provided in a bond. In addition, in the case of the premium and contrary to what happens with the bonds, if in the end the tenant does not decide for the purchase of the house, he would lose all of it.

For this reason, it is very important to ensure that, when the time comes, you will be able to pay the purchase price or qualify for a loan. Likewise, if it is clear that this is the most appropriate option, before making or signing the contract you must verify that the house is free of charge.

How should the rental contract with option to purchase be?

The rent with option to buy is an atypical contract, not contemplated by the Law and that is not expressly regulated in the Civil Code, although it is accepted and recognized in the Mortgage Regulations and the Urban Leases Law (LAU). For this reason, it is very important that all conditions are very well specified in the contract.

For this to be in force and according to the Supreme Court, it is mandatory that at least two essential conditions of the sale are stipulated therein: the object of the contract and the price. This means that the decision to acquire the house is transferred to the tenant after the marked years of rent and the sale price stipulated for the residence at the time of signing the contract, in addition to the amount of the rental fees and the percentage to be discounted of the lease rent in case the sale is made. If an initial premium is provided, which is usual, the agreed amount of it must also appear.

Since it is a double contract, it is convenient that it clearly reflects all the conditions related to the lease and purchase. In this sense, these are the data that should be included in both the rental agreement and the sale contract:

Rental contract

-Term during which the tenant can be leased in the house
-Term during which the tenant can exercise his right to purchase
– Amount of monthly rental income
-Who bears the cost of the community or a possible reform

Sales Contract

The willingness of the landlord to sell the property to the lessee if he is interested in his purchase.
Sale price of the house.
Percentage (fixed or variable by years) of the rental fees made until the time of purchase to be deducted from the sale price.
Amount of the initial premium contributed by the lessee (if any) for the right to purchase, normally set based on a percentage of the agreed sale price.

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