Lease Options and the way setup...legal?

I do 2 year lease agreements with a seperate lease/option agreement (except for two I did which I can’t change at this time). The lease spells out terms for the renting. The lease/option spells out the terms for buying at a predetermined price over the next 2 years.

On all of the agreements (except for two of them), there is no “credit” of rents applied to the purchase price of the property.

For all of those contracts (except for the two I keep mentioning) am I missing something that these could be illegal? These folks were not the originaly owners of the homes.

The two contracts I had that it appears there are some issues is that the lease and lease/option agreements are one in the same. It also spells out a rent amount and they could pay up to a certain amount above this rent amount as monies toward the purchase price.

I could probably create an addendum that negates the “extra” monies that they have the option to pay on (for example: Rent is $1000 a month but they have the right to put an additional $200 a month toward the purchase price). If I get an addendum signed, then I guess that would take that out of the formula. Is there still issues with lease and lease/option being in the same document?

If I was able to get the renters to sign two whole new agreements as addendums to existing agreements: would that work?

Thanks in advance.

Follow Ups:

I wouldn’t even worry about it. Next time just keep all the options and leases separate so if you go to court you just have to bring the lease. And put the rent credit clause in the option agreement instead saying “any payments X makes towards the option deposit… Y will credit them with $400 off the purchase price” or something like that. You may also want to tell them to give you separate checks for rent and anything going towards their option deposit.

You may also want to put in your option agreement that in the event of an eviction or the withdrawal of rental payments… the option agreement will become null and void.

Also… if they give you sizable option deposits, it would be smart to have them close through an attorney so they can have the assurance that you will uphold the option which will make them more likely to cash you out in 1 or 2 years.

If you have a predetermined price and/or are allowing rent credit, that qualifies in many states as a “disguised sale”. It won’t make any diff as long as everything goes well, but if you have a problem tenant he can claim an “equitable interest” in the property and very likely prevail on that issue necessitating an expensive foreclosure process rather than an eviction.

Da Wiz

Thats true. But half the time they lose the option agreement anyways. And even if you have to foreclose… if you got at least 3% as a nonrefundable option deposit and a rental security deposit… it shouldn’t be a big deal.