what is the dif between lease option and lease purchase - Posted by Pet


#1

Posted by Rob FL on March 04, 1999 at 21:39:33:

You’re too funny. My neighborhood has a few of them too.


#2

what is the dif between lease option and lease purchase - Posted by Pet

Posted by Pet on March 02, 1999 at 20:11:24:

please tell if there is a dif.


#3

Re: Thanks all of you for answer - Posted by pet

Posted by pet on March 04, 1999 at 09:47:36:

Thank you all


#4

Other thoughts… - Posted by karp

Posted by karp on March 03, 1999 at 22:21:46:

I am not sure if this has changed, but in my State, one other difference was if a seller sold a house to a buyer Lease Purchase style using an agent, the commission was due right then and there. Whereas, if the same transaction took place using a LEase Option, the commission was due at the time of the actual exercising of the option…

How relevant or helpful that is, I have my doubts…

One other thing that has always bothered me about this LO vs LP distinction is the following:

In a Lease Purchase Agreements I have seen, the penalties for default are spelled out in the contract and aren’t severe at all. In fact, they amount to the same penalties you might see with a lease option. ie. Lose your option consideration, etc.

So that being the case, the line between the two of them becomes very thin indeed…

Thanks,

karp


#5

Re: what is the dif between lease option and lease purchase - Posted by Rob FL

Posted by Rob FL on March 03, 1999 at 18:59:40:

I agree with TJ Pickens and Bill Gatten on this issue. Option means the buyer can back out and not buy and Purchase means the buyer must buy.

What really matters though is what the actual agreement says in its content and wording, not the title of the document.

You can take a man, put a dress on him, give him makeup and a purse, and change his name to Heather, but if he still has all the body parts of a man, he is still a man regardless of what he looks like or calls himself. (I know this is a ridiculous example)


#6

Re: what is the dif Wow! What Confusion!! - Posted by Bill Gatten

Posted by Bill Gatten on March 03, 1999 at 15:05:30:

Wow! What a lot of confusion!

The best answer here so far is the one by TJPickens (short sweet and to the point).

A Lease Purchase is a Contract for Sale and a Lease Option is not. The former starts the 180 day 1031 exchange clock ticking the day it is structured and creates a taxable event: the latter does not. In the latter there is no tax deductions for the Optionor (because no equitable interest is to be conveyed… yet); in the Lease Purchase there is tax deduction and the optionee is treated as an owner because he MUST buy the property, and has assumed all risk and burdens of possession as well as an “equitable interest” (See WD Belden 70TCM 274,Dec 50,802(M) re. IRC1.163-1(b)).

WATCH OUT!!

Lease Purchases can be VERY dangerous for the Optionor because a defaulting tenant (after having unlawfully detained the property and stretched out the foreclosure and ejectment process for months or years… living rent free for all that time) can come back later and demand a refund of all of his Option Money and all monies paid over and above Fair Market Rents, along with any expenses for repairs, improvements and assessments. BEWARE!!! (See “Bogus Lease Option” Robert Bruss, L.A. Time circa 1994 [can’t find it right now… if any one is interested, let me know and I’ll look it up]).

Hope this helps.’

Bill


#7

Not the same - Posted by hk CA

Posted by hk CA on March 03, 1999 at 13:30:53:

Calling a contract a Lease Purchase Agreement doesn’t necessarily make it one. As rayrick said, “If your contract stipulates that the sellers remedy in the event of buyer default is limited to keeping any earnest money deposited as liquidated damages, then it becomes functionally equivalent to a lease with option to purchase.” Call it a Lease Purchase if you want, but it is legally a Lease with OPTION to Purchase, since that is the remedy for non-performance under a L/O. But drawn up correctly, they are not the same.


#8

Re: what is the dif between lease option and lease purchase - Posted by Brad Crouch

Posted by Brad Crouch on March 03, 1999 at 12:46:52:

While listening to some Ron LeGrand tapes, I heard something very interesting.

Ron seems to feel that using a purchase agreement with your tenant buyer is better than using an option agreement. By setting the closing date to whatever option length you want, making sure there is a “liquidated damages” clause that limits the liability of the buyer to funds already paid and inserting a “special remarks” clause stating that if the accompanying lease agreement is ever defaulted upon, the purchase agreement is void.

This apparently makes “Lease Purchase” an easier, less complicated thing to “sell”. Also seems to get around some states laws about “dealing in options”. And less chance for a tenant buyer wanting a refund to argue “equitable interest”.

Does anybody have any experience with this method?

Anybody have an opinion?

Brad


#9

Re: what is the dif between lease option and lease purchase - Posted by rayrick

Posted by rayrick on March 03, 1999 at 12:17:26:

I would say that neither of the answers below is the whole story. A lease purchase agreement DOES commit you to making the purchase, which a lease option does not. However, if your contract stipulates that the sellers remedy in the event of buyer default is limited to keeping any earnest money deposited as liquidated damages, then it becomes functionally equivalent to a lease with option to purchase. In either case, you simply lose any option consideration and accumulated rent credits if you don’t buy.

In short, without the above clause the two things are quite different; with it they are essentially the same. Hope this helps.

-Ray


#10

Re: what is the dif between lease option and lease purchase - Posted by Jay

Posted by Jay on March 03, 1999 at 09:15:46:

They are the same. Lease purchase goes by a number
of names rent to own, lease with an option, and
lease purchase. You basically lease or rent for x
years with prenegotiated price and terms, and you
have the right or option to buy within x years.
That’s the basics but there are extras like have an
assignment clause.


#11

Re: what is the dif between lease option and lease purchase - Posted by TJPickens

Posted by TJPickens on March 02, 1999 at 21:39:26:

Lease Option - You can walk away at the end of the lease without buying the property if you so desire. (Leaving your non-refundable option money with the seller)
Lease Purchase - You contract to BUY the property at the end of your lease agreement. No ifs, ands or buts.
Hope this helps.

TJPickens


#12

Re: what is the dif between lease option and lease purchase - Posted by Bill Gatten

Posted by Bill Gatten on March 04, 1999 at 18:17:54:

Ridiculous example?? My next door neighbor’s kid would resent that comment!

Bill


#13

Best Advice I know… - Posted by karp

Posted by karp on March 03, 1999 at 22:26:17:

Hey this one I think came from Bill Bronchick’s stuff.
If I am wrong he can jump in and correct me.

The best way to keep the equitable interest question from arising is to do 2 seperate agreements. One is Lease, the other is an Option. The option is contingent upon the provisions of the lease being fulfilled.

My thoughts are by seperating these two “events” you lessen the chance for the transaction to be seen as one unified “SALE”. I have never been hit with this question in court or otherwise, so I would really love to see someone who has dive into this in more detail.

Thanks,

karp