Rent to Own Considerations
If your rent to own transaction involves real estate, the first and most important consideration is whether or not to hire a real estate attorney to review or prepare the agreements. Unless you are personally a real estate attorney, you almost certainly should consult with one. A good real estate attorney can generally give you the information you need on these kinds of contracts for a reasonable amount of money. Doing so could save you far more than the legal fee in the long run. Also, remember that in many states the laws governing real estate could be very different than those governing consumer transactions involving goods.
Things to Remember
For transactions involving any kind of item, there are basic considerations that both sides to the transaction should consider.
The basic questions that need to be answered by the agreement are:
- How much are the payments going to be?
- How frequently are the payments due?
- How much of the payment is applied to the payment price of the property?
- Is there a down payment or option price?
- What exactly does the property consist of?
Maintenance
Who is in charge of maintenance and how can the other party be sure that it will be done? The contract between the parties will generally govern this very important topic. It is important to both parties that maintenance be performed on the property, so some distribution of rights and responsibilities should be discussed.
Taxes and Insurance
Are taxes and insurance included in the rent-to-own price and what are the terms? The buyer may be told that the seller will continue to pay the homeowners insurance policy for the term of the rent-to-own arrangement. Or for an automobile, the seller may continue to provide insurance to protect against the loss of the vehicle during the time that it is driven by the buyer. But at what limits? Will the buyer be a named beneficiary? What are the terms that are included within the policy. Similarly, if the responsibility for insurance is shifted to the buyer, the seller will have similar concerns that should be specified in the contract.
Understood the Default
What happens if the buyer defaults? This may very well be covered by a statute in your state. If it isn’t, the agreement between the parties must very clearly provide for the effect of default. What if the buyer defaults in the first month of the 5 year lease term? What if default is in the very last month of payment? What if the payment is only one day late? This information needs to be fully disclosed and discussed at the initiation of the rent to own arrangement.
Rights of Access
Retained rights of access? Here the question is whether and to what extent the seller can return to the property or use the car. For example, if the seller is driving by and notices that the gutters need to be cleaned, does the seller retain the right to access the property or would such be considered trespassing. If the transaction involves a car, can the seller retain a set of keys?