lease-purchase agreement
Lease-purchase agreement
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
Lease-Purchase Agreement
An agreement between an owner and a renter to rent a property, often but not always real estate, for a certain period of time during which the renter can apply his/her rental payments toward the purchase of property, if he/she desires. For example, suppose one rents a house for $600 per month. In a lease-purchase agreement, the $600 may be held in escrow and may be applied to a down payment on the house at the end of the lease, if the renter so chooses. If the renter does not choose to buy the house, the money in escrow goes to the owner of the property as if it had been rent all along. It is also called a rent-to-own agreement.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
lease-purchase agreement
An installment sale.The tenant sometimes pays a higher-than-market rent for the property,with a portion of the monthly payment earmarked as rent,another portion as principal payments,and another portion as interest.
Landlords should not rely on a lease-purchase agreement as a mechanism to keep all payments and bypass foreclosure if there is a default by the tenant.Courts are very antagonistic to such forfeitures. By planning ahead and classifying the different aspects of the monthly payments,you can avoid the possibility of a court deciding things for you or the IRS deciding how to treat the income.
The Complete Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD. Copyright © 2007 by The McGraw-Hill Companies, Inc.