Legal Question in Real Estate Law in California

Re: lease agreement

There is no formula, it's strictly a matter of negotiation between the landlord/seller and tenant/buyer. The number should be negotiated in advance along with the rent and any other terms of the lease-option contract.

As a general guideline, if the rent charged is less than or equal to market rental value (without the option), any amount of rent paid which is applicable toward purchase is, in effect, a gift. A $650 rent on a property with a mortgage payment of $816 seems low. Just how low cannot be told without knowing the terms of the mortgage and the loan-to-value involved.

Another consideration is the 'strike price' or price at which the purchase option can be exercised. If the strike price is somewhat higher than market value, crediting some rent toward purchase is fair. If the strike price is equal to or lower than fair market value at the time of exercise, any rent that is applicable toward purchase represents a probably-unnecessary concession to the optionee/buyer.

In sum, the amount of rent applicable to purchase is a business decision more than a legal issue. You should consider the advice of a professional (real estate broker and/or attorney) in drawing up and executing the documents.