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Lease Purchase Agreement

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Lease Purchase FAQ

What is a lease purchase agreement? A lease purchase agreement is a contract whereby the lessor/seller agrees that in return for a non-refundable deposit, the lessee/buyer has the option of buying the property at the end of the lease period. Generally, some of or all of the deposit and payments made under the lease are applied to the purchase price should the lessee/buyer at the end of the lease decide to exercise the option to purchase the property.

Why use a lease purchase instead of buying? Many people are unable to obtain financing for the purchase of a home. A lease purchase agreement permits persons with less than perfect credit or with little or no money available for a downpayment to purchase a home.

Advantages of lease purchase. During the term of the lease, the lessee builds equity at a specified rate so that at the end of the lease period, the lessee/buyer has the option of purchasing the property at a specified amount.

Disadvantages of lease purchase. Because the lessee/buyer is not paying a traditional home finance company, he does not receive any of the tax deductions for the interest on the house payments. Also, because the lessee/buyer is paying the lessor/seller each month instead of a traditional home finance company, if the lessor/seller were to go bankrupt or lose the home in foreclosure, the lessee/buyer's entire investment might be lost.

What happens if I fail to make lease payments? Generally, the provisions of the lease purchase agreement state that should the lessee/buyer fail to make lease payments as agreed, the deposit is forfeited and the lessor/seller may evict the lessee/buyer.

When will I receive a deed to the property? Title to the property remains with the lessor/seller until the lessee/buyer exercises the option to purchase.

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