Legal Question in Real Estate Law in California

Re: leasing a home

Depends upon whether you are the owner/lessor or the tenant/lessee.

The happy outcome percentage for lease-option deals seems to be lower than one would hope. My guess is that is because the deals are cooked up and written down by people without a whole lot of experience in deal-making or contract writing. Another factor is that tenants who want options and owners who are willing to give them are likely to be folks who are uncertain about what their future needs will be and/or are in a distress situation -- stuck with a home they couldn't sell in the case of the owner/lessor, or a new job they aren't sure is going to work out, in the case of the lessee. Both parties are guessing to some degree about what the future will bring, and the guesses are often not completely accurate. Needs change, markets change, opportunities change, and recollections about the terms of the lease-option contract change.

This leads to a likelihood of discord in 18 months or so, when the option exercise date comes up, or a third party wants to buy the house for a very attractive price, or when major repairs are needed, or when the tenant has to move, etc.

I personally feel that lease-option agreements are a fine idea in principle, and ought to be used more often. I also think that the parties need very good advice from third-party professionals (brokers or lawyers) about both the financial terms and the contract language.

With a well-written and sensibly-priced option contract, the owner gives up some flexibility, for example, the right to sell at a higher price if the market goes up, and the lessee (should at least) pays for the privilege of having the option to buy at a predetermined price by paying somewhat above-market rental rates. Whether the give-and-take is a "pro" or a "con" in the long run is only known in the final analysis: maybe the lessee gets a good deal, maybe at option time the deal doesn't look good at all and the lessee moves out without exercising the option.