If you live in New York and have been thinking about a Rent to Own Agreement, there are some important things to know.

What is a Rent to Own Agreement?

A Rent to Own Agreement allows potential home buyers to rent a property for a certain period of time (usually five years), then gives them the option to buy at the end of the agreement.

The renter agrees to pay a onetime fee of anywhere between 1%-7% of the agreed upon purchase price up front. Some contracts allow this fee to be put towards the final purchase price, allowing the renter to start building equity in the house. The renter may also pay a monthly fee, above and beyond the rent, that is called a Rent Credit. This credit goes directly into covering the down payment of the property.

At the end of the Agreement, the tenant/buyer then has the option of purchasing the home at the agreed upon price or walking away.

There are quite a few positives and negatives here for both prospective tenants/buyers and for landlords/sellers.

Positives for Potential Buyers

• There aren’t a lot of options out there to buy a home if you don’t have the 20% down payment that most banks or mortgage lenders require. A Rent to Own Agreement gives you around five years pay that down payment while also living in the property.
• When you sign, you lock in the price of the property, even if prices in the neighborhood increase when you’re ready to buy.
• You get to “test drive” the home. Is the neighborhood what you thought it was? Did you come across anything with the home you didn’t expect (like a leaky roof or inadequate plumbing)?
• You can usually find Rent to Own programs in neighborhoods looking to revitalize, so you may be able to get a great price for a home in an up-can-coming neighborhood.
• If you are working to improve your credit score, this type of arrangement can give you the time to need. You’ll still need to get a mortgage at the end of your agreement – you’ll get a better rate with a better credit score.

Positives for Potential Sellers

• If you’ve been trying to sell your property and haven’t found the buyers you are looking for, a Rent to Own Agreement may work for you. This way you have an interested buyer living in the house, instead of an empty property.
• Tenants in Rent to Own properties keep their rentals in much better condition.
• If, at the end of the Agreement, the tenant decides not to purchase the property, you get to keep their option money and lease credits.

Negatives for Potential Buyers

• With the lease credit added, you will probably be paying more each month than the local rental average.
• Depending on the agreement, you may be responsible for all maintenance costs on the property (which, with a regular rental lease, the landlord takes care of).
• At the end of the Agreement, you will be expected to pay the full amount of the agreed upon cost. If you cannot, all your option money and lease credits can be kept by the seller.
• If the seller/landlord is in financial difficulty and needs to declare bankruptcy, you can lose your right to purchase the property.
• As a renter, if it’s shown that you substantially broke the agreements of your lease, your landlord can  legally evict you and keep your option money and lease credits.
• There are a number of predatory landlords that use Rent to Own scams to hurt the unwary. New York State is currently investigating a number of claims and has posted some warnings about what to look out for – https://www.dfs.ny.gov/consumers/help_for_homeowners/rent-to-own_and_land_installment_contracts

Negatives for Potential Sellers

• Once you sign an Agreement, the price for the property is locked in. If at the end of the Agreement your property value has increased significantly, you can’t ask for more.
• While the Agreement is in effect, you are still considered a landlord by the State of New York and must comply with all laws and regulations.
• There is no guarantee that your tenants will be able to make the purchase at the end of the Agreement, leaving you to have to put the property back on the market if you want to sell it.
• If you change your mind about selling the property, there is no easy way to break the Agreement on your end.

The Next Step

Whether you are a potential buyer/renter or a potential seller/landlord, the first thing you need to do is contact the right tenant/landlord lawyer. There is no one-size-fits-all Rent to Own Agreement and, like all contracts, trouble happens when things are unclear or accidently left out.

If you’d rather talk directly to a compassionate, knowledgeable, human being, reach out to New York tenant/landlord attorney Ronald D. Weiss, P.C.  for a free consultation. He can review what you want to do, and help you get the process started. Call 631-823-7182 and take the first step to a fresh start.