Probably one of the most common questions I get in real estate on a " For Sale" property is " Will they do a "lease with option to buy" ? Most of the time, the answer is "No". The potential renter usually wants to set a sale price at beginning of lease. Few sellers will agree to that. They also want owners to credit them a % of what they paid in rent to help them pay for closing costs. Some owners will agree to that, but many want increased rent, so what's the point? But most of the time, the people asking for " lease with option to buy" haven't even met with a lender and have no idea if they could even qualify to buy the house if the owners did agree. And what is an "option" anyway? It doesn't commit tenants to buy or sellers to sell. There are many misunderstandings by people looking for properties to lease. So here are some things that should help both owners and potential renters understand leases.
(1) LEASE- A contract for possession of a property in return for payment / consideration. ( usually money).
(2) LESSEE - The person who leases the property from the owners.
(3) LESSOR- The person who owns the property and leases it to a non-owner for use.
(4) LEASEHOLD- The interesst a lessee has in real estate by virtue of a lease.
(5) MINERAL LEASE- A lease that entitles the lessee to explore for minerals, then mine them if discovered.
(6) OPTION- The right to purchase or lease a property at a certain price for a designated period of time for which consideration is paid.
(7) PERCENTAGE LEASE- A lease of commercial business property in which the the rent is based on the income earned and/or volume of sales made from the leased property.
(8) SHARE LEASE- Usually a farm lease whereby the owner or landlord, and the tenant farmer share production costs and then divide income on an agreed upon basis. A common scenario is a owner has a 60 acre farm with 50 acres of pasture. He lives on and uses 10 acres for horses or cows etc. but doesn't want to buy expensive hay equipment to bale his own hay, so he'll find a local farmer that needs hay for his cows, etc. Owner and farmer agree to let farmer have hay in exchange for owner keeping a %. Usually a 70-30 split. Farmer bales 100 round bales, keeps 70 for his cows, and leaves 30 for the owner.
(9) GROUND LEASE- Land and buildings upon land are seperate properties. A lessee would pay rent to the owner for using the land, but would retain ownership of any buildings lessee builds on the property.
(10) ASSIGNMENT OF LEASE- A lessee can transfer the balance of their interest in lease to another party, however most owners will include a term in the original lease that states " This Lease is Not Assignable".
(11) LEASE OPTION AGREEMENT- Agreement to lease property that also gives lessee an option to purchase the leasehold interest at a future date.
(12) LEASE PURCHASE AGREEMENT- Agreement to lease property that also binds the parties to complete a purchase and sale of the property at a future date.
(13) SHORT TERM LEASE- Short terms are usually different for housing and land. Short term for housing is usually 6 months or so. Short term for land is usually a minimum of 1 year, but can be up to 3 years. An owner looking for a farmer they can work with might offer a 1 year short term trial lease.
(14) LEASE TERM - The duration of the lease.
(15) LEASE TERMS- All the elements and conditions that are contained in a lease agreement.
(16) LONG TERM LEASE- This is mostly used with land and farming leases. 5-10 years is considered a long term. Long term leases can be up to 99 years. Long term allows farmers to plan, for example, no farmer is going to plant grapevines, Christmas trees, or fruit trees on someone else's property if they only have a 3 year lease.
(17) ROLLING LEASE- A rolling lease rolls over annually. For example, on a 5 year rolling lease, at the end of the first year, the tenant still has 5 years to go.
There are many more things both owners and tenants should consider and understand before entering into a lease. Especially when considering a long term lease. Contact me if you need assistance with home , land, or farming leases.
Jeff Pearl | Lic in VA
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