Rent-to-Own Home Laws

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Rent-to-Own Home Laws

While there are many federal and state laws which apply to the real estate industry most of these laws pertain to traditional mortgages and lending practices. Since a rent-to-own lease agreement is essentially a lease agreement and not a real estate purchase; federal lending laws and real estate laws do not apply to the lease agreement in a rent-to-own home.

Surprisingly, there are no existing federal laws that specifically regulate the rent-to-own homes industry. However, there may be certain state or local laws that apply.

General conditions in a rent-to-own lease agreement

Since there's very little governing laws surrounding rent-to-own contracts it's important to get a basic understanding of some very common or general aspects you'll encounter in a rent-to-own contract. You should note, most of the terms in a rent-to-own contract are negotiable. So learning all you can about the various aspects of a contract will help you get the best deal possible when negotiating with a seller. Here are just a few basic conditions found in a typical contract

  • Renter pays for the property taxes
  • Properties are generally sold "as is" so getting an appraisal and all the necessary inspections is a sound decision.
  • There is usually a clause that determines eviction parameters, these parameters outline the circumstances in which the seller can evict the tenant. In that event, the tenant loses all money paid toward equity in the home. Make sure you negotiate and understand this important aspect of the contract
  • Most of the time the seller will not allow the tenant to make any sort of modifications or improvements to the home with the consent of the seller.
  • There can be clauses that place the burden of maintenance and repairs on the tenant.

Get a real estate attorney

It's always preferable to have a professional look over the contract and help you understand exactly what the contract entails. A real estate lawyer is likely the best candidate for this role but there are some seasoned real estate agents who could also help with negotiating contracts. While reviewing the contract make sure that the following questions are addressed.

  • Will the tenant be evicted for late payments or other contract violations?
  • Are option-fees and rent percentages being applied to down payments?
  • Who will be responsible for repairs, taxes, HOA and insurance during the lease period?
  • Are down-payments and other money towards a down payment refundable in the event of eviction or if the tenant chooses to not exercise the purchase option?
  • Is the purchase price locked in once the lease agreement is signed?

When entering into an agreement, be sure to protect yourself and review your contract thoroughly. It’s advised to contract a real estate attorney who can help you go over the contract, and will explain anything you do not understand.

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