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Go To: Home > Tips & Strategies > Tip 1

What is a Lease 2 Purchase contract? The Basics.

by Jeff Beaubien

General definition

A "lease purchase (or lease option)" is the abbreviated form of the appropriate term "lease with option to purchase." Simply stated, a Lease 2 Purchase contract combines a basic lease contract with an option to purchase contract, which creates a Lease 2 Purchase contract.

A few misguided advocates believe that a lease purchase contract combines a lease agreement with a purchase agreement, thus requiring the tenant to purchase the home at the end of the lease. Don't be fooled; this is old-school and is almost never used in todays real estate market.

Before I describe what a Lease 2 Purchase contract is in detail, I must first define a few simple basics for you.

What is a contract?

A contract is an agreement between two or more persons (individuals, businesses, organizations, or government agencies) to do, or to refrain from doing, a particular thing in exchange for something of value.

What are the key elements to a binding real estate contract?

  1. Offer and acceptance: Original signatures with no alterations to the contract. If the original offer is marked up and initialed by the party receiving it, then signed, this is not an offer and acceptance but a counter-offer. Any final agreement should be reduced to a final writing and signed by both parties.
  2. Consideration: A bargained for exchange of something of value. Money is the most common form of consideration, but a promise to perform (i.e. a promise to pay) is also satisfactory.

  3. In writing: A real estate contract must be in writing and it must:

    • Identify the parties: The full name of the parties must be on the contract.
    • Identify the property: At least the address, but preferably the legal description must be on the contract.
    • Purchase price: The amount of the sales price or a reasonably ascertainable figure (an appraisal to be completed at a future date) must be on the contract.
    • Signatures: A real estate contract must be signed to be enforceable.
    • Legal purpose: The contract is void if it calls for illegal action.
    • Competent parties: Minors, mentally impaired, drugged persons, etc. cannot enter into a contract.
    • Meeting of the minds: Each side must be clear as to the essential details, rights, and obligations of the contract.

What is a Lease contract?

A lease contract is an agreement, usually written, between the owner of a property and a renter who desires to have temporary possession of the property. As a minimum, the agreement identifies the parties, the property, the term of the rental, and the amount of rent for the term.

In addition to the basics of a rental (who, what, when, how much), a housing rental may go into much more detail on these and other issues.

What is an Option contract?

An option contract is defined as "a promise which meets the requirements for the formation of a contract and limits the promisor's power to revoke an offer."

Or, quite simply, an option contract is a type of contract that protects the individual making the offer (the offeree) from a seller's (the offeror) ability to revoke the contract.

What is a Lease 2 Purchase Contract?

Again, it's very easy. A Lease 2 Purchase contract combines a basic lease contract with an option to purchase contract, which creates a Lease 2 Purchase contract.

What is a Lease 2 Purchase contract?

The tenant/buyer pays to the landlord/seller a nonrefundable option deposit that is applied to the purchase price of the home. The tenant/buyer then pays to the landlord/seller rent to compensate the landlord/seller for the tenant/buyer's use of the property.

Rent payments are usually made on a monthly basis. A portion of that monthly payment is often applied to the purchase price and/or the down payment of the home.

During the term of the lease, but before the option expires, the tenant/buyer has exclusive right to buy the home under the terms to which both parties have previously agreed.

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