Rent to own is an interesting alternative for those who wish to purchase a property, but cannot do so immediately. This modality combines the benefits of traditional renting with the possibility of becoming an owner in the future. In this article, as a real estate in Fuengirola we will see in detail what is rent to buy and we will highlight the legal keys that should be considered when signing a contract of this type.
What is rent to own?
Rent to own, also known as lease with option to buy or leasing with option to buy, is an agreement in which a tenant rents a property for a set period of time with the option to buy it at the end of the contract. This type of contract gives the tenant the flexibility to live in the property before making a final decision to purchase.
Benefits of rent to own
- Financial flexibility: the tenant has time to save and improve their financial situation before committing to buy the property.
- Test the property: the tenant can live in the property and assess whether it suits his or her needs before making a decision to buy.
- Price stability: the purchase price is fixed at the beginning of the contract, which protects the tenant from fluctuations in the property market.
- Option not to buy: if the tenant decides not to buy at the end of the contract, he/she can generally do so without penalty.
Key legal issues in the rent to own contract
When considering a rent to own contract, it is very important to pay attention to certain legal aspects in order to avoid future problems:
Regarding the rental
- Clear description of the property that will be subject to the contract and the use to which it will be put.
- Lease term to be fulfilled by the tenant, with the duration established by the legislation in force at the time of formalising the contract, which may be longer than the period granted for the option to purchase, but never less than the term required by law. In addition, the lessee has the option to commit himself exclusively for the first six months.
- Start date of the rental contract.
- Cost of the rent and its update, together with the corresponding payment terms.
- Amount of the deposit and its possible deduction from the purchase price if he finally exercises this option.
- Compensation to the landlord if the tenant gives up the tenancy after the first six months of the lease have elapsed.
- Responsibilities regarding the payment of services and supplies, as well as the passing on of taxes and municipal fees to the tenant during the term of the contract.
All other issues and clauses and relevant to both parties in connection with the lease agreement, provided that they are in accordance with the law.
Regarding the purchase
- The authorisation to the tenant to make unilateral decisions regarding the purchase of the property from the lease.
- The specific period during which the tenant may exercise his or her right to purchase, which may not exceed the agreed rental term, including forced extensions, but may be shorter.
- The final price agreed for the future purchase of the property.
- The payment of an amount as a premium, which is considered as a commitment to purchase, and the conditions governing its loss or total or partial reimbursement in the event that the tenant does not exercise his right to purchase.
- The percentages or instalments of the rent to be deducted from the agreed purchase price, together with the premium or down payment, and their variation depending on when the purchase option is exercised.
- These discounts are interpreted as incentives on the agreed price. In addition, it can be established whether or not these incentives will apply in the event of default by the lessee during the rental period.
- The allocation of expenses and taxes related to the future purchase, generally borne by the buyer, with the exception of the Tax on the Increase in Value of Urban Land, being a municipal capital gain, which will be the responsibility of the seller.
Similarly to the lease contract, any other clause relevant to both parties.
In short, in the real estate world, rent to own is an attractive solution for those looking for the perfect combination of renting and owning. With the right legal keys and a well-drafted contract, this option can open the door to ownership in a more accessible and flexible way.