What
should be in a Good Lease Purchase Agreement ?
By Claude W. Diamond J.D.
Lease Purchasing is one of the most profitable and practical ways to be
in real estate. You don’t need a bank or a pot of gold to get started.
There is an absence of Tenant & Toilet problems (if setup correctly)!
It’s creative and even fun ! Lease Purchasing can also be a nightmare
if you do not have the foresight to have well designed, strategically written
contracts.
Recently I was asked by a reader where he could find good generic Lease
Purchase contracts. To me that is like asking a neurological surgeon if
he can recommend a do it yourself brain surgery kit and combination salad
maker!
I advised the reader that there are generic lease purchase contracts from
several sources. One such source is your local real estate agent or office.
They have the multi-purpose fill in the many blank type forms.
The question remains, however, are they any good or even
WORTH THE PAPER THEY ARE WRITTEN ON ?
My handy Law Dictionary defines Generic as follows: Something not specific
or not referring to a specific thing.
Generic contracts are just that generic. They are designed with the one
size fits all concept. In reality, they are not designed to protect you
or your interest in the particular Lease Purchase transaction with which
you are currently involved.
I have collected many of these so called generic Lease Purchase agreements
for years. Not only have I gotten agreements from Realtors and stationary
stores; others came from the get rich quick, while staying in bed all day,
books and seminars. They all have one thing in common. They're garbage !
They are poorly written and lack the necessary clarity and/or specific verbiage
inorder for the contract to be enforceable.
I have designed and utilize six specific contracts for my own Lease Purchase
deals. Which one I use is determined by the hat I am currently wearing at
the time. Am I the Landlord/Seller, the Tenant/Buyer or the Assignor/Assignee?
Will I be Subletting, Assigning, Sandwiching, Pure Optioning or just quick
flipping?
TIP: I always carry a couple copies of my Lease Purchase Contracts/Lease
Purchase Forms in my car's trunk right next to my earthquake emergency kit*
compartment. An investor is always prepared!
Here are a few suggestions for items that should be contained in any Lease
Purchase Agreement. Some of these may seem like obvious inclusions. Having
been involved in Lease Purchasing for many years now, I can tell you that
the obvious is not always so!
1. Identify the principle parties: Who is the Tenant/Buyer and who is the
Landlord/Seller? It might even be a good idea to do business as a corporation.
2. Location of the property: Use the parcel identification number (PIN)
and the street address. There should be no mistake about which property
you are dealing with.
3. Date and Signature: Make sure all the owners sign the contract. This
includes spouses, partners or anyone who has ownership or an equitable interest
in the property.
Big problems can occur with a Lease Purchase if you don’t have all
the owners sign. Better yet, check the title, loans, etc.
4. Term: Be specific on the length of the contract.
Strategy Tip: If you are negotiating with the owner make the contract for
as long as possible. If you are the owner or are subletting the property,
make the contract no longer than one year.
5. Be Specific: All the terms, including Price, Rent Credit, Closing Costs,
Option Consideration, Financing and Escrow should be included. No term should
be ambiguous. Be specific !
Generic Contracts, YUCH !!! I would recommend that you never use a generic
contract! If, however, you choose to do so, have it reviewed by a competent
attorney who is either a real estate investor or who specializes in real
estate law. (Sorry, it’s the Perry Mason in me!) Better yet have him
design an agreement that meets with your needs, expectations and of course,
PROTECTS YOU.
*Required survival gear for all California vehicles! |