How to Assign a Lease Option Contract
A lease option contract can be a viable option for both the seller/landlord and tenant/buyer. The seller, as a landlord, has sufficient time to learn the payment and responsibility level of the tenant. The tenant, as a prospective buyer, has adequate time to give the rental a test drive before making a permanent commitment. A lease option contract spelled out in layman terms works best for all the parties involved.
- Difficulty:
- Moderately Challenging
Instructions
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1
Obtain a lawyer to draw up the contract. The document should begin with "This Lease Agreement with Option to Purchase Real Estate (hereinafter referred to as the Lease/Option)..." Short lines should be included for entering the day, month and year the contract is to be signed. Also, spaces for the names of both the lessee and the seller must be on the form as well as their addresses. Throughout the contract, refer to the tenant as "Tenant/Buyer" and the seller as "Landlord/Seller."
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2
Enter the "Description" of the leased property on a separate line. Include the address and property type.
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3
Enter the "Term" information as you would in a normal lease. The amount of rent, due date, any advances or grace period. The beginning day and month of the lease and ending date of the lease must also be entered. Add a sentence stating that the terms are valid unless sufficient notice is given to the "Landlord/Seller" to terminate the contract or the "Tenant/Buyer" exercise the option to purchase the property.
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4
Enter the "Possession" terms on a separate line. State when the keys will be delivered to the tenant.
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5
Enter the "Rent" terms on a separate line. State how much the rental fees are per month, when the first and last payments are due. State that all rental fees will be credited to the "Tenant/Buyer" and applied to the purchase price of the property if the option to buy it is exercised.
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6
Enter the "Option to Purchase" details on a separate line. Explicitly state that the "Landlord/Seller" grants the "Tenant/Buyer" the exclusive privilege, option and right to purchase the property during the term of the lease or if an extension is granted.
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7
Enter the "Liquidation Damages" information on a separate line. State that the "Landlord/Seller" will keep all monies paid if the "Tenant/Buyer" defaults on the lease.
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8
Enter the "Covenants of Tenant/Buyer" information on a separate line. State the responsibilities of the "Tenant/Buyer" to pay all utilities if applicable. Include a statement that the "Tenant/Buyer" has the right to enjoy the property without interruption by the "Landlord/Seller."
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9
Enter the "Costs of Improvements" information on a separate line. Add a line stating that if the "Landlord/Seller" neglects to convey the true condition of the property, the "Tenant/Buyer" shall be entitled to reimbursement of improvements, maintenance and repairs.
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10
Enter a "Further Encumbrances" statement on a separate line. List the first mortgage and amount, current taxes due, date taxes are due and if there are any other liens on the property. State that the "Landlord/Seller" shall not lease rights or interests to any third party and furthermore agrees to keep encumbrances in good standing; otherwise, the contract shall be breached.
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11
Enter the "Rights of Assignment" information. State that the "Tenant/Buyer" may assign, transfer or sublet the property and if so, the "Tenant/Buyer" will be released from his/her original obligation.
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12
Enter "Maintenance and Repairs" information on a separate line. State that the "Tenant/Buyer" accepts the property "as is." State that the "Tenant/Buyer" shall pay the cost of improvements, if applicable. Make sure that this information does not contradict the "Cost of Improvements" section. Review your terms and make adjustments as needed to be consistent in your lease option contract.
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13
Enter your "Binding Agreement" information on a separate line. State that the lease agreement supersedes all prior oral or written agreements and that it is a binding contract.
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14
List any "Special Provisions." List any special repairs, conditions that must be met by the "Landlord/Seller" along with the date each is to be completed. State that the this section has the same terms as in the "Maintenance and Repairs" section. State that a "Title Search" will be ordered immediately and paid for by the "Tenant/Buyer." The "Tenant/Buyer" has the option to proceed or void the contract afterwards.
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15
List the "Option Purchase Terms" on a separate line. List the "Price and Terms" and include how much the property will be sold for minus any offset reimbursements. State if the property can be purchased in cash or with cashier's check, certified check or other means.
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16
List the "Included in this Purchase" information on a separate line. State whether the appliances, carpet, window shades or other furnishings are included in the purchase price.
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Enter the "Title" information. The title must be marketable and unencumbered with the exception of existing mortgages. State that the "Tenant/Buyer" shall refer to the "Further Encumbrances" section for a list of liens, taxes and other information.
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18
Enter the "Closing" information on a separate line. State the time frame for the deed to be delivered and paid (usually no more than 60 days) after the "Tenant/Buyer" accepts the option to buy.
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19
Enter the "Costs and "Prorations" information. Create two separate columns, one for the "Landlord/Seller" and one for the "Tenant/Buyer. List real estate taxes, assessments, and interests on encumbrance in the appropriate column of the one who will be responsible for paying each item.
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20
List the "Insurance" statement on a separate line. State that the "Landlord/Seller" will be responsible for maintaining property insurance to cover fire and other disasters until the closing date.
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21
Enter any other "Legal" information clauses on a separate line. State that in the event that a legal proceeding is made to enforce the agreement if it is breached, each party shall waive their right to a jury trial; court costs will be paid by the non-prevailing party.
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22
Create two each "Landlord/Seller" and "Tenant/Buyer" signature lines and "Witness" line for a licensed notary to sign.
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1
Tips & Warnings
Each state has different laws concerning lease option contracts. For example, in 2011, it is unlawful to draw up such a contract in Texas. Specific information must be included on the form in order for it to be valid in Indiana. Since there are so many legal variances, do not attempt to draw such a contract up without the assistance of a lawyer who practices in your particular state.
