Rent with an option to buy, is a contract in which the buyer wants to acquire a property, and wants to occupy it and use it immediately, but wants to postpone the final decision of purchase to a later time.

And, in addition, buyer wishes that, during the time of use of the property, the seller cannot offer the property on the market, so reserving  the exclusively option of purchase for the buyer, for the whole duration of the contract. Here is the most important difference with this contract and a “normal rent contract” where the landlord can sell the property to someone else, even while the existence of a rental agreement.

Therefore, in the Rent with option to buy  contract there are two main concepts involved:

– It is similar to a Purchase Contract, with “option to buy”.

That is, the buyer wants to buy the house, but demands to have the house at his disposal until he confirms his decision. In other words, he wants the purchase option to be for his exclusivity. 

Once the term or condition agreed in the contract has been met, arrives the moment in which the buyer must decide to execute the right to buy the property. In this moment, there are two scenarios:

• The buyer can exercise his right to purchase, and, in that case, complete the purchase. Thus, the buyer would pay the rest of the price to the seller, and the sale transaction would be completed.
• The buyer wishes to withdraw from the purchase, therefore, he assumes the loss of the amounts he paid.

– It’s a rental agreement.

The buyer wants to occupy the house immediately, but, as explained above, he prefers to leave the formalization and final purchase decision for later. With which, it is proposed to assume the figure of “lessee” or “tenant”, until he decides to exercise, or to desist, from the purchase option during the time stipulated in the contract.

In this way, the buyer, now the lessee/tenant, agrees on rental conditions, and on the payment of rent, with the seller, now the landlord/lessor, during the term of the contract.

And in the same way that with respect to the exercise of the purchase option, once the maximum term to exercise it has come, the buyer or lessee/tenant has several options:

• To execute he purchase option and complete the sale. In this case, the rental transaction is cancelled, now converted into a sale.
• Buyer does not exercise the purchase option. In this case, the rental agreement is also annulled. Obviously, in case the two parties agree, the rental contract can be extended, or a new rental agreement can be created, and then the contract will be only for rent.

What happens to the amount paid in the purchase option?

Is it considered as part of the price? In other words, can the option be discounted from the final price to pay for the property?

It will be what both parties agree. That is, the amount paid for the option will be deducted from the price if both parties agree . In this case, the amount paid for the purchase option is discounted from the rest of the price to pay for the property.

What happens to the amounts paid for the rent?

Are they deducted from the final price to pay for the sale?

The answer is the same as above. That is, it will be the parties who will have to agree, when agreeing to the conditions of the contract, if the rent is be discounted from the final price or not, in case of purchase decision is confirmed.

How is the Rent with option to Buy Contract formalized?

It is normally a private contract, which does not need to be notarized.

Therefore, the most common practice is to prepare a private contract between the parties without having to go through a notary. Although, it is essential that the contract be drawn up by a specialist lawyer.

For more security of the tenant, the contract can be made on a notary and registered in the property registry. Registration of the Option-to-buy contract at the land registry office will have the following expenses:

• Notary and land registry expenses
• Lawyers/Solicitors fees
• Taxes

Therefore, the most common practice is to prepare a private contract between the parties without having to go through a notary. Although,  it is essential that the contract be drawn up by a specialist lawyer and in Canton Abogados we are specialized in the preparation of thy type of contracts.