Let’s be real. Not everyone has stellar credit, or a pile of cash set aside for a new home; and without luxuries like these, the journey to homeownership, although possible, can seem a bit circuitous to say the least. One viable avenue available to those who aspire to homeownership but lack the means for a more direct route is to enter an Option to Purchase. An Option to Purchase is a land contract by which a property owner gives another the right to buy the owner’s property at a fixed price within a certain time. Typically combined or executed concurrently with a residential lease agreement, the Option to Purchase, together with the lease, is considered an executory contract – otherwise known as a contract for deed. Unlike a mortgage, a contract for deed allows a seller to retain title to the property until the purchaser has paid for the property in full. This means that, in the case of a lease agreement with an Option to Purchase, the landlord retains ownership of the property until the tenant has exercised the Option and paid for the property in its entirety.
To constitute an executory contract, enforceable by law, the option language in the lease must be unambiguous, leaving nothing for interpretation, as to the date by which the Option will be exercised and the price at which the property will be sold. A vague provision like “LEASE TO PURCHASE where 5% of each rent payment will be applied toward the down payment when tenant is ready to purchase at market value” does not rise to the level of an executory contract. Rather than containing a fixed price, this provision specifies only that the property may be purchased at “market value” without specifying how “market value” might be determined. Further, the provision lacks a date certain by which the sale of the property may be compelled, stating only that the Option will be exercised “when tenant is ready.”
Bottom line, an Option to Purchase is a great alternative to the conventional routes through the home buying process. However, the language must be drafted in a way that, when the lease has expired, and months (even years) of payments have been made, the Option to Purchase remains a viable one.