Legal Question in Real Estate Law in California

Re: Lease Option to Buy

It depends on the terms agreed upon for your particular deal.

Re: Lease Option to Buy

A lease with option to buy can have many different terms depending upon what the parties agree upon. Strictly speaking, a "pure" lease with option to buy would have a lease with traditional terms, for example, $1,000.00 per month for rental; then there may be a provision that the lessees also purchase an option for a price of, for example $10,000.00, to enable them to purchase the property at an agreed upon price during an agreed upon period of time. If the lessees do not exercise their right to purchase, they lose the option money which belongs to the lessor/seller for his having agreed to give the lessees the right to purchase during the term of the option at the agreed-upon price. None of the monthly lease monies, or the option money, need be applied toward a purchase price, but many parties agree that some will be so applied.

Re: Lease Option to Buy

The allocation of the payments toward rent or the purchase price is negotiable. The laws does not mandate what percentage is allocated to the purchase price versus rent.

Re: Lease Option to Buy

With all respect to my colleagues, all three of the other answers fall short of the mark.

The answer is, the rent is or is not credited to the purchase price according to whatever deal is agreed to by the buyer and seller. Do not assume that a contract that the seller hands you, even a pre-printed contract, is the one you will have to sign.

What the seller will agree to depends on the seller's level of sophistication. A sophisticated seller will have a contract drawn up by his or her lawyer, and he or she may show little flexibility. A non-sophisticated seller may not even have a lawyer, and could be persuaded to sign your contract that you had your lawyer draw up which has terms which are entirely favorable to you.

As in any negotiation, what people will or will not agree to can depend on the amount of negotiating leverage possessed by each -- which can include issues of time, money, and knowledge.

The possible terms are varied and coud impact the possible tax-deductibility of your payments, and whether and when your property taxes will increase under Proposition 13.

You need to consult personally with a lawyer who is experienced in real estate installment sales.

Re: Lease Option to Buy

After reading all four previous answers, I'd say that Mr. Berger's answer says all that needs to be said.

The allocation of money paid on a lease with option to purchase is not set by law or tradition. It is one of the terms that should be negotiated between the parties before anything is written up and signed.

If you are past the stage of negotiating and documenting your deal, an interpretation of what your deal is would probably be based upon what's in writing, not some understanding you had or thought you had that didn't get written down, and if the written agreement reads like a lease-option but makes no mention of an allocation, I'm pretty sure the judge would rule that the money was 100% rent, and zero to be applied to the ultimate purchase, if the option is exercised.