When properties are hard to sell people often consider doing rent to buy. As the name suggests you rent a property with a view to buying it at some stage in the future.
They normally consist of a tenancy agreement and an option to purchase the property. A common example is a tenancy agreement for two years and an option to purchase the property at any time during those two years for a preset price.
If the tenancy agreement ends at any time so does the option.
You normally pay an option fee (which comes off the purchase price), which is in return for the seller keeping the price the same for the whole of the option period. This fee is non-refundable.
You can have a clause which allows the purchase price to be reduced by some or all of the rent. This is often the case where the price is higher than if the seller were to sell to a cash buyer. Notwithstanding this clause the rent will never be refundable.
These type of agreements work well where the buyer needs time to save for a deposit or has difficulty saving for a deposit.
Before engaging a lawyer to do the paper work you need to agree on the following issues:
- Purchase Price
- Option fee
- Rent per week
- How long the option runs for
- Is any part of the rent to come off the purchase price