Lease Purchase Agreement
A lease purchase agreement is a contract that combines a rental lease with a binding commitment to purchase the property at a predetermined price and date. Unlike a lease option, this arrangement obligates the tenant to buy the property at the end of the lease term, making it essentially an installment sale. A portion of the rent payments typically goes toward the future down payment or purchase price.
Example
“Unlike a lease option, the lease purchase agreement legally obligated Tom to buy the property at the end of the three-year rental term.”
Memory Tip
This agreement 'purchases' your future - you must buy, no choice like with options.
Why It Matters
Lease purchase agreements help buyers who cannot immediately qualify for traditional financing to work toward homeownership while building equity through rent payments. For sellers, these agreements provide steady income and a guaranteed sale, though they carry risks if the buyer defaults.
Common Misconception
Many people confuse lease purchase agreements with lease options, but lease purchases create a binding obligation to buy rather than just providing the option to purchase.
In Practice
A family unable to get a mortgage due to credit issues signs a two-year lease purchase agreement for $150,000, with $300 of their $1,200 monthly rent applied toward the purchase price. At the end of two years, they must complete the purchase and will have already contributed $7,200 toward the sale price through their rent payments.
Etymology
A compound term combining 'lease,' 'purchase' (from Old French 'purchacier' meaning 'to acquire'), and 'agreement,' formalized in American real estate law in the 1980s.
Common Misspellings
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