Tenant Buyer will not pay kind of long

Ok so I have this lease sandwich on a property and now I am running into some trouble. The tenant/buyer is does not want to buy the property now, they say my price is too high. Well I have and appraisal to support my sale price. Anyways that’s not the problem. The TB paid $4k in option consideration (which they knew was non refundable) and they were to pay a monthly rent of $1,400/mo for 4 month = $5,600.00. The TB said he is not going to pay me July or August rent. Because he paid the $4K in option consideration, so I explained to him that the option consideration is for the right but not the obligation to purchase the property and that it was non refundable. So I have two different contracts with the TB one is a Purchase contact which states that the binder/option consideration money is non refundable and that if they violate any part of the Residential Lease Agreement. The Purchase agreement will become null and void. I then go on to explain the money paid every month as per the Lease contract is separate from the Purchase contract. Now to paint a picture of this TB he has only paid rent on time twice in the 4 months. He did not pay all of the Option Consideration money when they said they would and when it came time for the monthly rent. There was some reason why they would not pay. For example TB told me there were no smoke detectors in the condo…then the next day there were but they did not work…anyways you get my point. Well I have a long paper trail in regards to this TB. I tried to document just about every thing that happened with this property. So I can sue for the back rent i.e. July and August…and can I attach late fees as per the lease agreement? Thank for the help if sorry for the long message.

Sounds like you have a straight renter failure to perform. You should enforce the rental agreement to protect your rights and property. Having said that I’m sure the renter will attempt to raise the purchase option consideration in his answer and accuse you of defrauding him. my2c

I would be concerned with an equitable interest issue. You call the option non-refundable. A judge might call it execution of a purchase using complex terms that creates an ownership interest for the TB that entitles him to the equity accrued since the option was paid. The issue becomes more complicate if you require the TB to make repairs and keep up the property. Legally, that is the owner’s responsibility and most states have laws that actually forbid the LL from requiring the tenant to do these things. Requiring the TB to do them implies he is the owner.

I don’t know if you know this, but failure to enforce the terms of rental agreement over time void your ability to enforce them in the future unless you specifically inform the tenant you plan to enforce the terms of the agreement.

If the TB won’t move when you serve notice, it would be a good idea to sit with an attorney to figure out how this could play out in court. Don’t think the court will interpret the contract the way you do. With just the facts presented, I see a few ways to argue in the benefit of the tenant that are reasonable.

My thoughts exactly! This is going to get messy and you need legal counsel right away

I’m not sure what state you are in, but in AZ, the fact that your option deposit is more than 1.5 times the monthly rent, makes your lease option a “disguised sale”. You established a sale price at the beginning of this transaction, another disguised sale component. The IRS considers this to be a disguised sale as well and considers your tenant to have an equitable interest. Your contracts are the most important part of a transaction and it is clear that yours are not compliant.

You may find that you have to foreclose on this client rather than evict. That will be difficult from a sandwich lease position. I recommend you RUN to an attorney ASAP.

Thanks for all the great advise…I have started to talk things out with my attorney. As for the TB he has told me he will be moving out in 30days. Which he as sent me a notice as per the contract. So I am not to worried about that issue as of yet…I just want to make sure that I get the back rent. Now as for this “disguised sale” issue where can I find more information on it…Because ever Lease Option course I have read talks about getting 3% of the purchase price for the Option Consideration. I am always up front with the TB about what they are responsible for in regards to the Lease Option, so I don’t think equitable interest should be an issue. Thanks again for the help I will keep you posted in who this turns out.

Did you collect a security deposit? If so, that should mitigate some of the back rent.

That’s not the issue. It is a form over substance issue. If it looks like sale, it will be treated like a sale regardless of what you call it. If elements of the contract are against public policy, the TB will get damages. Both parties can even agree that the contract terms are as you say and the judge can still rule the transaction against public policy and award damages to the TB.

The lease option courses don’t cover stuff like they this. Partly because the authors don’t understand the legal issues involved and partly because people wouldn’t buy the courses if they knew all the perils of lease options. They do not offer legal advice and systems, even if they say otherwise. They offer ideas and provide templates to help you build your own systems. You must adapt them to your situation and review them with your local attorney. Don’t take them at face value.

Lease options are good way to buy and a bad way to sell, but if you want to sell, don’t require the TB do pay for stuff a normal tenant wouldn’t. Repairs, maintenance and other costs you wish to shift should be added to the price, not paid out of pocket. A TB who thinks he is buying will do cheap repairs and you will have to pay to have the shoddy work undone. An equitable interests or disguised sale case will force you to foreclose instead of evict. That will cost much more than option fee.