lease options explained for vendors faqs

8/6/2019 Lease Options Explained for Vendors FAQS

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Lease Options Explained for Vendors FAQs

A Lease Option is a relatively new but simple method of selling a property.Under a lease

option, the vendor agrees to sell the house at a fixed price to the purchaser today;however

the purchaser does not complete the transaction until a later date. In the mean time,

thepurchaser holds what is called the Lease Option for the g iven period. At the end of this

period thepurchaser will complete the transaction and purchase the property in full.

As soon as the Lease Option Agreement is made, the Option Holder becomes wholly

responsible for theproperty under contract and the vendor is able to walk away with no

further financial responsibility.

For all practical purposes the Lease Option holder owns the property, in that they take all

responsibilityfor the upkeep, the mortgage payments and letting the property in short,

any costs that might ariseand any rental income.The only connection to the property the

vendor maintains during the option period is the mortgag eremaining in their name until the

option period is over and the purchaser exercises the option to buy. Atthis point the

mortgage is transferred in name also to the purchaser.

FAQs

1. How long is the Lease Option period prior to final purchase?

The period for the lease option before final purchase can vary and is agreed in the terms of

theindividual lease option contract. Usually it will be between 7 and 21 years.

2. Can the Lease Option holder decide not to exercise the option to buy and if so what

happens then?

There are usually break clauses within the Lease Option Agreement at given intervals at

which time theLease Option holder can decide not to pursue the agreement. In this instance

the ownership of theproperty simply reverts in full back to th e original owner i.e. the

vendor.In that case the vendor will have had the benefit of the mortgage being paid for the

entire period theoption has been in place. It is unlikely that the Option Holder would choose

not to purchase at the endof the Option peri od.

3. Will the lease option agreement cost me anything to set up?

No. All legal costs in setting up the agreement will be met by us , up to a value of£500. There

should be no cost to the vendor in setting up the agreement.

4. If the mortgage remains in my name, do I still have to make the mortgage payments?

No. Under the lease option agreement, which is a binding contract, the lease option holder

has to makethe mortgage payments to your lender.



5. If the mortgage is still in my name then I must still o wn the house and am liable for its

upkeep?


is responsiblefor the upkeep of the house and all maintenance.

6. The mortgage remains in my name, therefore am I responsible for letting the property?


is responsiblefor letting the property should they choose to do so.

7. Will I be able to secure a mortgage on another propert y whilst this house remains in my

name?

Yes. Having this house in your name should not affect your ability to secure another

mortgage on adifferent house. We can actually put you in touch with lenders who are

familiar with the leaseoptions and are happy to lend on this basis.

8. If I am or plan to be on housing benefits can I claim whilst my old house remains in my

nameunder the lease option agreement?

Unfortunately no you cannot. The government does not take into account the

circumstances of the leaseoption and deems that as you are a house owner you cannot

claim benefits for accommodationelsewhere.

9. What are the benefits of the lease option agreement?

The lease option gives you the immediate freedom to walk away from the property with no

ongoingfinancial responsibility and at no cost. It allows the Option holder to delay the

purchase until financingis more favourable.By delaying the transaction the option holder is

often able to agree a price sufficient to cover thevendors debts where otherwise a

traditional immediate purchase might fall short.The agreement is formed via solicitors so

that there is no doubt or confusion as to the nature of theagreement and it can be

formulated and completed very quickly, within a period of weeks.

10. What are the disadvantages and/or risks of the lease option agreement?

There are few for the vendor under the lease option agreement. In fact most of the risk is

heldby the Option holder. If the vendor for example is declared bankrupt then there is the

risk the propertycan be repossessed and the Lease Option holder can lose theinvestment.Similarly if mortgage rates rise sharply effecting the mortgage repayments, then

the Lease Option holderis exposed to this risk (not the vendor), as they are responsible for

meeting the mortgage payments.The Lease Option holder can decide for whatever reason

not to pursue the right to buy at the agreedprice, thus making use of any break clause in the

contract. In this instance ownership simply revertsback to the vendor. In this case the

vendor simply inherits an asset which has been financed by a 3rd

party for the given period of

the Lease Option - up to the point at which the break clause has beenexercised.



11. Why bother with the Lease Option - Why not simply pursue the sale in the traditional

manner?

The Lease Option is fast and easy. The Lease Option can also allow the vendor to sell when

otherwisethey may not be able to do so, for example due to market constraints.

In many cases the market value of the property has dropped so that there is little or no

equity left in theproperty i.e. the mortgage is equal to, or greater than the current market

value of the property.In this instance it can be very difficult to sell, particularly in a

depressed market where buyers are fewand are making low offers in the face of difficult

financing conditions.Many vendors actually end up agreeing a price below their mortgage

liability simply to off-load theproperty and so end up with a debt and no asset.By pursuing

the Lease Option agreement, often a price can be agreed at the mortgage level so that

thevendor is not left with any outstanding debt. This is possible because the actual final

purchasetransaction is delayed.

Disclaimer: The information provided herein is not financial investment advice or legal advice but general property investmentinformation. All commentsare of a general nature only. Any information given does not take into account your particular financial

situation, objectives or property investment needs.Each individual should satisfy themselves by independently seeking advice from an

appropriate professional of the suitability or otherwise, of any commentor information given.

lease options explained for vendors faqs

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