Lease Purchase
Definition and meaning of Lease Purchase in real estate.
A lease purchase is a contract in which a tenant agrees to lease a property for a specified period and is legally obligated to purchase that property at the end of the term. Unlike a lease option, which gives the tenant the choice to buy, a lease purchase binds both parties to a future sale.
In more detail
This agreement consists of two parts: a standard residential lease and a purchase contract. The contract establishes the purchase price, closing date, and terms of the sale at the very beginning of the lease. A portion of the monthly rent may be credited toward the purchase price or down payment.
If the tenant fails to close the purchase at the end of the lease, they will be in default and may face legal action or lose their accumulated credits and deposits.
Key facts
| Category | Leasing & Property Management |
|---|---|
| Applies to | Buyers needing time to improve credit or save for a down payment |
| Watch out for | Legal obligation to buy even if you cannot secure financing |
| Required by | Sellers seeking to lock in a buyer and secure rental income |
A buyer who cannot qualify for a mortgage immediately enters a lease purchase agreement to rent a house for two years, with a legally binding commitment to purchase it for a set price when the lease ends.
Frequently asked questions
What is the difference between a lease option and a lease purchase?
A lease option gives the tenant the right, but not the obligation, to buy the property. A lease purchase legally binds the tenant to buy the property at the end of the lease term.
Can a buyer back out of a lease purchase agreement?
Backing out of a lease purchase is difficult and constitutes a breach of contract, which can lead to legal lawsuits and the forfeiture of all paid deposits and rent credits.