Lease options have grown in popularity and are now a viable way of selling and buying a property. But what are they? And when should I look to sell using a lease option? This article attempts to explain both.
What is a Lease Option?
A lease option is a legal contract that is created between two parties and drawn up by solicitors. It gives the right for someone to lease a property and then right to buy the property for an agreed amount, within an agreed timescale. Lease options are more common in other markets and are commonly used in commercial property transactions, in football transfers and in financial markets when stocks or commodities are optioned.
The 4 key parts to a Lease Option
The three key parts to a lease option when selling a home are:
- Lease Option length: The length of time the option will last, within which the seller will receive an agreed amount for the lease and within which the Option to buy the property must be exercised. Three or Five years are most commonly used, but have been known to be 10 or 20 years for some Lease Options.
- Lease Amount: The amount of money paid to the seller to lease the property. The timing of the payment varies, but are most commonly paid once when the Lease Option commences, or at regular intervals such as monthly or annually.
- Option Amount: The amount of money paid to the seller for creating the option to buy the property. This can range from £1 up to £,000s, depending on the property and the agreement. This is usually paid when the Lease Option agreement is signed.
- Option Price: The amount agreed between the seller and the buyer for the property to which the Lease Option applies. This is the amount that will be paid for the property.
An example lease option for selling your home
An example is always helpful to understand how a Lease Option works for residential property, so we have pulled one together:
- A lease option negotiated and agreed by the buyer and seller results in an agreement where the current owner is paid £500 per month to lease the property (Lease Amount) to the buyer for 5 years (Lease Option Length).
- The buyer also pays the seller a nominal fee (£100) for the option (Option Amount) to buy the property within the 5 year lease (Lease Option length) for £100,000 (Option Price).
What happens after the Lease option has been signed? Here are three scenarios, based on the example above:
- If the buyer exercises the option within the 5 years, they will need to pay the seller £100,000 for the property and will become the legal owner.
- If the buyer does not continue to pay the £500 monthly lease fee the agreement will be broken and the lease option may be cancelled.
- If the buyer does not exercise the option to buy the property within 5 years, or extend it beyond the 5 years, the Lease option expires and the property is returned to the seller.
When should I sell using a Lease Option? What are the benefits?
In this section we detail the scenarios and benefits of using a Lease Option:
- Those in negative equity: Lease Options can suit anyone, but those that we most frequently help are in negative equity. Negative equity occurs when a property was bought at a higher price than it is currently worth, or the mortgage is more than the property’s current value. This can be due to various factors and most often is due to people buying when the market is at its peak and having to sell when the market is near the bottom.
- Those needing a quick sale: When compared to a traditional sale, setting up a Lease Option is much faster. It allows you to put in place the Lease Option quickly, allowing you to move on with your life. This can be particularly helpful for those moving to a location due to a new job, or those emigrating.
- Those needing to raise funds quickly: if you are looking to raise some funds quickly, a Lease Option can provide you with funds quickly. This can assist those who need to put together a deposit.
- Those needing a regular monthly income without the hassle of renting their home: If you are looking for a regular monthly income without the hassle of renting your property, this can be for you. The individual leasing your home will take on responsibility for it, based on the details within the Lease agreement. They must meet the agreed payments otherwise, they default on the Lease. This can take out the stress of renting your property – especially if the tenant does not pay for some reason.
Interested in using a Lease Option?
If after reading this article you are interested in getting a Lease Option for your home or property, please get in contact to discuss further and find out if we are a good fit. If you need a fair price and to move forward without stress and hassle K&G Lettings Limited would be your best option. We understand that you need to move on with your life, and that the house selling process is stressful and expensive. At K&G Lettings Limited, we specialise in helping people move on with their lives by using Lease Options, or by buying their house quickly and without hassle.
Do you have a question about Lease Options? Do you want to get a Lease Option offer for your property? If YES, fill out the form below.
Even if you don’t decide to sell, we’d love to answer any questions you might have. Give us a call today on 01482 961961.
The information presented in this article is for educational purposes only and should not be considered legal, financial, or as any other type of advice.
