There are very few lawyers who do lease options. There are also a handful of law firms that do lease options and creative deals, Julie Condliffe is one of the few lawyers specializing in lease options, rent to rent, delayed completion and other creative property investment strategies.
In this article, we cover some of the topics involved with Lease options, lease option agreements and purchase lease options. For the avoidance of doubt, this is not lease option legal advice.
What is a lease option?
A lease option is a legal agreement allowing you to take control of a property you do not own and generate an income from it without the obligation to buy it. You have the option to purchase, but not an obligation to buy. You have a lease (sometimes a tenancy/management agreement) and an Option to buy. The word “lease’ is often used loosely in residential purchase lease options. A lease option has two primary parts: the lease and the option.
Lease: This is the tenancy part where the buyer pays a monthly payment to the owner. The buyer then takes control of the property in the immediacy to manage it and/or rent it out to tenants for a profit.
Option: This is an agreement containing a legal right for you to purchase the property at a later date if you choose it. Remember, you are not in any way obligated to buy.
Do you need a lease option agreement?
If you are entering into any legally binding agreement, it is always advisable to have a written agreement. Written agreements avoid unnecessary wrangles associated with verbal contracts. Lease options are no exception. It is even more critical in property matters where there is a requirement for the contract to be in writing. So, do you need a lease option agreement to be in writing. Yes. I would go as far as stating that when you do a lease option, it is imperative to get a lease option lawyer. The lawyer must be a lease option lawyer: that is, a lawyer experienced in lease option matters. A lease option lawyer’s fees will range from £550 to £1,200, mainly dependent on location and experience. It is equally important for the seller to obtain independent legal advice and representation.
Are lease options legal in the UK?
Most lawyers frown upon lease options. Is that because they are unlawful? Are lease options legal? Are they legally enforceable? These are some of the many questions people ask when it comes to lease options. The short answer is, it depends. That is because three questions have been asked. Let us explore each of them in turn:
Do lawyers frown upon lease options because lease options are unlawful? In other words, are lease options illegal? Depending on the precise nature of the deal, some lease options are unregulated, but not necessarily unlawful.
Are lease options legal? Yes, they are legal. They have been used in Wellingborough, England and worldwide since before I was born. That is a long time ago.
Lease option heads of terms To help the solicitors understand details of what the parties agreed, it is prudent to agree on heads of terms. Heads of terms are simply a document outlining what the lessee (buyer) and the lessor (seller) have agreed. It is that simple. You could write it on the back of a fag pack. As an afterthought, that might not be the best idea. In a nutshell. Heads of terms for a lease option agreement could include:
The heads of terms must be an accurate representation of what has been agreed. It will help your lease option lawyers and the sellers’ lawyers to draft a bespoke lease option agreement that is fair.
A summary of the key points
Lease options are legal. Please use an experienced lease option lawyer. The same lease option concept is akin to that utilized in shares, cars and property development land or property. But, in property, there are specific requirements, which a lawyer should be able to help with. It is advisable to have a lease option lawyer for the purchaser and a lease option lawyer for the buyer.
A Lease Option is a method of securing a future sale of the property. Under a lease option, the seller agrees to sell – usually at a fixed price - to the purchaser at a later date. In the interim, the purchaser has what is called the Lease Option for a defined period. At the end of the defined lease option period, the buyer has an option complete or to walk away. Indeed, the buyer has an option to walk even before the end of the lease option term if experienced lawyers carefully draft the agreement.
As a side note, it seems lease options work particularly well in high capital growth areas such as Wellingborough. Of course, not just in Wellingborough. We are only using Wellingborough as an example. It is worth mentioning that not every place in Wellingborough falls within this bracket. As with any other cities, Wellingborough has excellent capital growth areas and other not so great areas. That is where your due diligence comes into play. For the avoidance of doubt, Wellingborough is not the holy grail of lease options, but it is an area worth considering. The views articulated in this article are subjective. Nothing contained in this article constitutes advice, legal, financial, investment or otherwise. I would love your views on lease options generally and your experience.
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