Rent to buy. Letting with the option to purchase: It can be the solution.

Rent to buy. Letting with the option to purchase

Increasingly many clients request our assistance in regard to leases and lettings with the option to buy, as at this moment this formula is increasingly being used, due probably to the difficulty of access to credit and bank loans, or job instability, or because property prices seem to be stable, etc.

Personally I think it could be a very good choice, depending on the circumstances, it could be the best or only option to reach an agreement between parties.

It allows the seller / landlord  to obtain an income, rent, while waiting for the property to be sold. Also, it is possible to agree a premium to be paid to have the option to purchase, to be paid by the tenant for having the right to purchase the property for a certain period of time.  If finally the right to purchase is not exercised, this premium would be kept by the seller. In some cases, however, the parties can agree an option to purchase free of any premium for having the option.

On the other hand, it allows the tenant and potential buyer, among other advantages, to live for a time in the property before buying it. In this way, they can see if it really fits with his/her needs, and invest the money paid for rent on a possible purchase, etc.

Lettings with an option or right to purchase, are a double contract, two in one. On the one hand the tenant is allowed to live in the property for the time agreed in exchange for a rent to be paid, and on other hand, for the period of time agreed by the parties, the tenants will have the opportunity to exercise their rights to purchase the property, deducting all or part of the lease rents paid.

This dual contract must be drafted very carefully, and as always we recommend you seek the advice of an expert lawyer, as you must make sure that your interests are protected both in relation to the letting and the purchase.

Amongst other points, it is essential to make absolutely clear:

.-The property or properties object of the lease and option to purchase, its description, status, etc.

.-Price, and other conditions relating to the sale.

.-Rent to pay during the letting period, who will bear the cost of supplies, local taxes, kind of rental to be agreed, etc.

.-Length and term of the rental agreement (here we must be careful with forced extensions), and period during which the tenant could exercise his/her right to purchase.

.-If the right or option to purchase will be free or if the tenant will have to pay a premium.

.-The amount or percentage of the rent that will be deducted from the purchase price.

Finally it must be noted that such contracts could be registered at the Land Registry in Spain, and if it is a second-hand property that finally is purchased,  Transfer Tax would apply as with a normal resale.

If you have any query, please contact us.

The information provided in this article is not intended to be legal advice, but merely conveys general information related to legal issues.

Carlos Baos (Lawyer)

Spanish Law firm solicitor attorney barrister.

Alicante, Denia, Costa Blanca Marina Alta

White & Baos 2015 – All rights reserved

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