Can someone please shed some light on the confusion I have with Lease Options vs Lease Purchases? I know that if I sell on Lease Purchase, then according to my state law, it is considered a type of owner financing such as a land contract. So, if the tenant/buyer does not pay, then would I have to evict or foreclose? Would it depend on how the contract is worded? According to a local investor, who happens to be a multimillionare and also sells his own courses, he says that the buyer on a lease purchase could not claim equitable interest and I could just do a simple eviction and not have to foreclose. Anyone have experience with this situation? (I am located in Alabama).
It realy depends on your contract if you are selling you need to have two seperate contracts. One for the lease and one for the Option. If you have a mixed contract it will more than likely look like a land sales contract in the eyes of the corts. If you have two documents it is hard to confuse which is which. I have never had to take any of my lease Options to that point but it could happen. There is no diffrence between the Lease Purchase and Lease Option it is the same thing. what realy matters is the content of your documents not the name. I do lease purchase contracts all the time.
Thanks for the info Collco. I was under the impression, from what I’ve heard and read, that a Lease Purchase was considered a sale like a form of owner financing meaning that the T/B will purchase the property. With a Lease Option the T/B is not obligated to purchase. I understand that it is better to have two seperate contracts with a Lease Option to protect yourself because the T/B can claim equitable interest. If you are just doing a Lease Purchase (in Alabama anyway) then most of the contacts I’ve seen have had only one document because there was no option involved. Maybe I’m wrong but this is how it was explained to me by a local investor. He said that with his Lease Purchase Contract which is only one page, the T/b cannot claim equitable interest in the property. I’m beggining to think he’s FOS.
There is no difference between a lease purchase and a lease option. Some will argue that the former requires the t/b to purchase the property, while the latter doesn’t. But in the real world there is no way to force anyone to buy a house they either don’t want to, or can’t.
The lawyers will tell you that there is a difference between the two. An option to buy gives the buyer the right to buy, but not the obligation to buy. An option to purchase legally obligates the buyer to buy.
The term “lease option” is generally used with a lease and an option to buy. “Lease purchase” is generally used with a lease and an option to purchase.
Neither are sales until the buyer exercises the option. If effect, as the seller, you are just letting the buyers rent from you for awhile until they get their financing in order before exercising their option.
AJ is absolutely right. In practice the two behave pretty much the same. While there is a technical difference in the legal implications between the two, a buyer who wants to back out will just walk away and forfeit whatever upfront option fee you managed to collect.