Pitfalls in renting housing with the option of subsequent purchase

Recommendation points

• What are the benefits of the parties to this agreement
• What you need to consider before concluding a contract
• 1. Purchase of the leased object is a right, not an obligation of the lessee
• 2. State registration of such transactions is required only after the transfer of ownership of the property to the tenant
• 3. Regular lease can be converted into lease with subsequent purchase
• Under what conditions will it be profitable for the buyer to purchase housing in this way?
• Trust relationship between the parties to the contract
• “Standing” real estate market
• Risks the tenant may face
• Death of the landlord
• Landlord’s decision to deposit the apartment as collateral to secure the loan
• Fluctuations in property prices
• How to properly draw up a lease with subsequent purchase
• Term of the contract
• Payment
• Rental object
• Obligations of the tenant and landlord
• Liability of the parties

To purchase real estate, people most often choose two options: a regular sales contract or a mortgage loan. According to statistics, agreements on exchange and purchase of mortgaged real estate are concluded much less frequently. But there is another type of home purchase, which almost never occurs in Russia, but under certain conditions can be very beneficial to both parties to the transaction – lease with the option of subsequent purchase. Let’s take a closer look at this type of transactions..

What are the benefits of the parties to this agreement

Tenant:

1. Gets the opportunity to use housing from the moment of the conclusion of the agreement, despite the lack of the full amount necessary for its purchase.
2. Eliminates the need to issue a mortgage to obtain the missing amount (collect all kinds of certificates, pay interest and commissions to the bank, etc.).
3. Has the right at any stage of the contract to refuse from further purchase of the premises.

Landlord:

1. Sets the value of real estate above the market average in order to reduce its risks from an installment sale.
2. The transfer of ownership takes place only after receiving the full amount established by the contract, which is also very beneficial for the home owner.

What you need to consider before concluding a contract

1. Purchase of the leased object is a right, not an obligation of the lessee

This is the conclusion that the courts most often come to when considering claims of landlords whose real estate has not been bought out by tenants..

2. State registration of such transactions is required only after the transfer of ownership of the property to the tenant

That is, as soon as the full amount of the purchase of the property, established by the contract, is paid, the tenant is considered the owner of the property, and his contract with the landlord is subject to state registration (like a regular real estate purchase and sale contract).

3. Regular lease can be converted into lease with subsequent purchase

This is provided for by Article 624 of the Civil Code. You just need to conclude an appropriate supplementary agreement with the landlord. In this case, the rent already paid will be credited to the redemption price.

Under what conditions will it be profitable for the buyer to purchase housing in this way?

Cases of such a deal are extremely rare, since in order for it to be beneficial to both parties, it is necessary that two factors coincide.

Trust relationship between the parties to the contract

Although this type of agreement is legal in Russia, there is no clear regulation in the legislation. Therefore, when choosing such a method of acquiring housing, it is necessary to approach the text of the agreement extremely seriously and one cannot do without consulting professional lawyers..

The ideal option would be the presence of family or at least a trusting relationship between the tenant and the landlord, which will minimize the possibility of litigation between the parties to the agreement.

“Standing” real estate market

If the real estate market continues to grow, the value of leased-to-buy premises may increase. In this case, the old price written in the agreement will simply not be profitable for the landlord, and he may try to terminate it. Therefore, it is profitable to decide to conclude such a deal only if you are confident that in the coming years prices on the housing market will not fluctuate much..

Risks the tenant may face

Death of the landlord

Often there are situations when the owner of a leased-to-buy property dies, and his heirs have other plans for the property bequeathed to them, and they try to terminate the agreement with the tenant in any way.

In this case, the law is on the side of the latter, since according to the legislation, the transfer of ownership of the leased property to another person is not a basis for terminating the contract.

Landlord’s decision to deposit the apartment as collateral to secure the loan

In this case, if he does not return the loan, the apartment will remain pledged by the bank and after all the agreed payments have been paid, the tenant will not be able to register ownership of the rented property..

The only way to protect yourself from such situations is to try to negotiate with the landlord about registration in the tenant’s apartment or, which would be ideal, a minor member of his family. It is unlikely that the bank will consider such real estate as collateral.

Fluctuations in property prices

In order not to get into a situation where, due to fluctuations in the real estate market or high inflation, the amount of payments under the contract becomes unprofitable for one of the parties, it is necessary to pay special attention to the regulation of this condition.

You can specify that payments on a monthly basis should be indexed by the inflation rate or pegged to the average level of market prices for similar properties.

How to properly draw up a lease with subsequent purchase

Consider the main points of the agreement, which must be spelled out in each lease agreement with subsequent redemption.

Term of the contract

The best way is to make the agreement indefinite.

Payment

The monthly payment of the landlord must consist of two components: the rent payment and the ransom payment. As already described above, you can schedule the indexation of each of the payments depending on the level of inflation and price fluctuations in the real estate market.

It is best to provide for the possibility of early redemption of real estate. Also, it will not be superfluous to have the condition that payments to the lessor’s account should be made through a bank branch, which will allow both parties to have their documentary evidence in case of a possible dispute..

Rental object

It is necessary to reflect the address, area and layout of the premises. It is advisable to attach technical documentation and copies of title documents to the contract.

Obligations of the tenant and landlord

In order to avoid disputes and disagreements in the future, it is necessary to clearly indicate who will pay utility bills, carry out repairs to the premises, etc..

Liability of the parties

The importance of this section in the contract does not even need to be explained.