Florida Lease to Own Contracts: An Overview
Understanding a Florida lease to own contract, also known as a lease purchase agreement, can be an eye-opening experience for both buyers or sellers to make a decision on whether such an option will work best for them. A lease purchase agreement is really just a hybrid between residential leasing and a home purchase. It treats these two normally separate and distinct contracts as one and wraps the whole process up in what looks like one electronic contract that is really two.
A lease to own contract in Florida is a dual transaction that runs simultaneously; first of all you are leasing a property that is currently owned by a seller, and secondly, you are purchasing the same property. So effectively , you are renting while you purchase that property as long as the lease to own is in effect. As far as the purchase is concerned, the purchase is a delayed purchase, which is dependent on the buyer making enough rental purchase payments to someone called an option fee.
Other features of these contracts are that the lease to own contract specifies what happens if the purchaser or tenant does not pay their rent or if taxes or HOA fees are not paid.
Lease to own agreements are determined state by state, county by county, and neighborhood by neighborhood. In some instances, these contracts are simple while at other times they can be extremely complex. There are many advantages and disadvantages to both buyers and sellers of such contracts.
The Legal Aspects of Lease to Own Agreements in Florida
Section 83.46 of the Florida Residential Landlord and Tenant Law dictates that a rental agreement must state the rental amount which is to be paid each payment interval listed in the lease. The agreement must also state the date upon which rent is payable. Florida may be one of the only states which specifically requires the rental agreement to state when the rent is due.
Looking closer at the sections of the Florida Residential Landlord and Tenant Law which regulates Lease to Own Contracts it is clear that the requirements of such contracts are listed in section 83.47 and require lengthy language. In particular, the Lease to Own Contract must contain specific language regarding the following:
The property which the subject of the Lease to Own Contract is to be located in the state of Florida.
The time for performance is within the state of Florida.
A statement by the seller that forfeiture of the option fee and premium will be the exclusive remedy for a default by the purchaser in performing any terms of the contract of sale that are not contingent on or do not relate to the purchaser’s ability to obtain financing.
The use of plain and conspicuous language such as ‘You will not be required to make any payment in addition to the option consideration, lease payments, and the down payment or the net sales price, if specified, before closing.’
Disclosure of the accountant or other third party who will hold the option payment must be made in the Lease to Own Contract.
Key Legal Elements of Florida Lease to Own Contracts
A Florida lease to own contract, also known as a lease purchase agreement, outlines a homeowner’s ability to rent and eventually buy a home. Because these contracts are a hybrid of rental and sales agreements, it is important that they meet specific criteria.
Providing the purchase price is important because it helps future buyers understand exactly how much they will pay for the home and helps prevent confusion. A clause can state that the price will be determined by the property’s market value at the end of the lease term or a specific dollar amount. The latter method allows the seller to determine exactly how much he will make on the sale.
Like any rental agreement, a lease to own contract includes language regarding lease payments. It requires that the buyer follows terms regarding when and how payments are made. The lease also addresses issues in the event that a buyer defaults on payments, including whether he loses the right to purchase the home.
The option fee is a special payment designed to provide the buyer with a right to purchase the property in the future at an agreed price. Many times, this fee counts toward the total sale price. When determining the amount of the fee, homeowners often consider the home’s future value. If the home appreciates significantly, the fee may not apply to the sale.
In a typical rental, the owner handles repairs and upgrades. When a buyer intends to purchase the home, the seller may request that the buyer complete certain repairs or improvements to the home as part of the sale.
Lease to Own Contracts in Florida: The Pros and Cons
There are several advantages and disadvantages for both the buyer and seller to consider when entering into a lease to own contract. From the buyer’s perspective, assuming a great amount of flexibility, a lease to own contract is an alternative to the typical home purchase. With a lease to own contract, the buyer does not have to apply for a loan with a financial institution and does not have to worry about being denied financing, paying closing costs, or coming up with an immediate down payment. Plus, since the buyer is renting, they can get accustomed to the home and to the local area before committing to buy. Also, if the buyer’s credit rating is not where it needs to be when signing the lease to own contract, the buyer has the additional time to repair any credit blemishes and work towards increasing their credit score to ensure financing.
From a seller’s perspective, there are similar pros and cons to a lease to own contract. While receiving monthly lease payments from the tenant may be appealing to the seller instead of waiting for the full sale price, at the same time, the seller is putting his or her faith in that buyer who has yet to qualify for financing. Plus, making the house available for rent-to-own means that the seller is limiting the pool of potential buyers. With an increase in rent-to-own options, from the seller’s standpoint, the benefit of doing a rent-to-own contract is the absence of additional expenses often associated with home sales. For example, the seller does not have to stage the house for showings, maintain the property between showings, wait to get the offer from the buyer, do home inspections or home appraisals, or hire a closing agent. So, while a pre-qualification and cloture on one’s home are not likely to be the case for a seller in a rent-to-buy contract, there are still costs and headaches involved on the seller’s end. At the end of the day, deciding whether to enter into a lease to own contract is a decision unique to each situation. As such, all it takes is good careful contemplation to determine if entering into such a form of contract is right for you.
Common Pitfalls to Avoid When Entering a Lease to Own Agreement
One common mistake is neglecting to seek legal advice before entering into a rent to own contract. This can be particularly harmful for the tenant-buyer and seller-agent. Depending on the drafting of contracts, tenant-buyer may end up paying higher than a market value (which is generally acceptable for rent to own finance) and paying for repairs and damage if not properly documented. Seller-agent for the property may find themselves subject to dual agency claims if sufficient disclosures are not made to both parties . Another mistake involves poor screening of tenants by the seller-agent. Failing to thoroughly check credit history and rental history can result in a poor tenant getting into a lease to own contract they cannot sustain. Not only does this negatively impact the seller-agent and seller, tenant-buyer may lose significant money in payments that add up over a 2 or 3 year period. Be sure that the rent to own contract contains a provision that protects you from change in interest rates. Interest rate fluctuations can mean thousands in interest fees during the life of a rent to own contract.
Making the Leap: From Tenant to Owner
Transitioning from Leasing to Owning
One of the many reasons that lease to own contracts may benefit owners and tenants alike is that not only do they have the potential to set up a tenant for homeownership, but also transition the owner out of the legal relationship without litigation.
The progression generally goes as follows:
It is imperative that the parties stay in contact throughout the tenancy to ensure timely payment of rent. As is the case with any residential lease, the penalties for nonpayment will usually be set forth in the lease. This is critical to keep in mind.
During the course of the tenancy the parties shall work with each other to ensure that funds are being set aside on a monthly basis according to the terms of the agreement. If the tenant can signify to the owner that they will have access to the option fee due by the end of the tenancy, typically at the conclusion of the lease term, the owner may be willing to deem the funds held in escrow as the initial option fee due for the purchase of the property.
In this scenario there are the greatest chances for pitfalls, especially if things occur in an unplanned fashion (ie. the owner giving a verbal agreement that the money can be applied to the purchase of the home). Things of this nature are always best put in writing.
It is also worth noting that while one may view the option fee, and the subsequent credits as being equivalent to a down payment to purchase the home, it does not have to be. Even with pre-existing credit issues, the owner must work diligently to ensure that the time period in question is utilized to not only set aside funds, but also to review the credit reports with the tenants.
Frequently Asked Questions Regarding Lease to Own Contracts in Florida
How does a lease to own rental contract work in Florida?
The Florida lease to own rental process is similar to renting property in the sense that you will enter into an agreement with the landlord. You will pay monthly rent for a certain period of time and after the lease is up, you can then choose to buy the property or not. However, if you don’t buy it, you will have to move out once the lease is over, and you lose any cash you put down for a deposit.
Do I have to pay anything to move into a lease to own property?
Yes, it may save you money in the long run , but you will still have to pay some money to move in. Depending on the agreement you come to with the landlord, you could have to pay some sort of up front financial obligation, be it first month, last month, a security deposit or some combination of the three.
What happens if I pay the deposit but don’t buy the house?
If you enter into a lease to own contract and pay a deposit but then choose not to purchase the house, that deposit is gone and you lose any chance you had at getting the house. You will then be forced to move out of the property once your lease period is up.
+ There are no comments
Add yours