Need Texas Experience/Help- lease-option lease-purchase

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Lease-Options have always been a favorite tool of Texas real estate investors. However, changes to the Texas Property Code Sec. Specific requirements must be observed and the burden is entirely on the seller to do so.

Read our chapter on Executory Contracts in Texas. Before continuing our discussion of lease-options, it is worth remembering that there is such thing as a stand-alone option to purchase, disconnected from a lease. How long does this option last what is the option term, in other words? Is it a one-time right or a continuing right? Is the option assignable? Just as important, what are the terms of the prospective purchase—cash, third-party financed, or seller-financed?

How long will the buyer have to close after notice of the texas lease agreement with option to buy of the option is given? When you think about it, a well-written option agreement is going to contain all the key points and material terms that are usually found in an earnest money contract. Another area that should be explored is the connection between any preferential right to buy real estate and executory contracts, since the latter are now heavily regulated by the Property Code.

Executory contracts include any transaction that defers some material action by either party that pertains to real property ownership or possession into the future.

So why do lease-options fall within this definition? Because the Property Code says so. Commercial lease-options are not affected. A case from the Texarkana court of appeals provides a good definition of an executory contract: By contrast, in an executory contract, the purchaser is usually given immediate possession, but is required to satisfy numerous obligations over an extended period of time before the seller has an obligation to transfer actual title.

CadyS. Just for the record, one can still do a long-term lease-option or other types of executory contracts—but consider the requirements. All of this must be done before the contract is signed. Additionally, it is required that sales advertisements disclose the availability of water, sewer, and electric service. The seller must provide a thorough disclosure of the financial terms of the transaction, including the interest rate, amount of interest charged for the term of the contract, the total amount of principal and interest to be paid, and the non-existence of a pre-payment penalty.

Excessive late fees and pre-payment penalties are banned. Even if all the foregoing statutory requirements are met, the buyer may still cancel an executory contract for any reason within 14 days of signing. Accordingly, an investor should not avoid utilizing a day or less lease-option if it is appropriate under the circumstances texas lease agreement with option to buy particularly if there is a fair possibility that the option could be exercised during that period.

Also, if the parties decide in good faith to renew the option texas lease agreement with option to buy another short option term, they should not hesitate to do so. In this context, we recommend using a day option term just to avoid any issue about whether or not the statute has been violated, since it is never a good idea to cut matters too close when dealing with legal deadlines. The answer is likely yesso long as the term of the option fails to be expressly limited to days or less.

Since the lease can easily extend for longer than days, the option can as well. Accordingly, a court would most likely find this arrangement to be an executory contract. What about the possibility of stacking six-month option contracts—i. Texas lease agreement with option to buy would appear to be a loophole, making stacking a possible way for a texas lease agreement with option to buy aggressive investor to still do a lengthy lease-option without complying with the executory contract rules, although at some risk.

No challenge, no issue. There are no executory contract police. Having said that, lease-option arrangements that endure in the aggregate texas lease agreement with option to buy longer than days are perilous.

All preferential rights to real estate, including lease purchases and lease options, must be express not implied and be in writing in order to comply with the statute of frauds. There is another statute that is applicable: Property Code section 5.

Preferential rights often cross the line into the zone of executory contracts, and the result has been to greatly inhibit their use in buying and selling real estate. Burdensome requirements and stiff penalties applicable to executory contracts cause sensible investors to avoid them.

Many real estate lawyers will not do them at all, since failure to comply with even the smallest requirement may trigger significant liability not just for the seller but also for the attorney preparing and filing the various disclosures and documents. Why not just evade the executory contract rules and march merrily forward?

The reason is that courts and juries generally do not favor investors and landlords, who are often perceived as profiteers preying upon the weak and unfortunate.

It often does not matter how clever your legal argument is. Underestimate a jury of 6 or 12 of your peers at your peril. These forms are suspect since they may not be designed specifically for Texas. They can now get an investor in real trouble. Often these forms are options with a different title. However, courts look to substance over form; and remember, courts do not like investors. A judge and jury will likely be angry with a seller who tries to pull a fast one with overly-clever verbiage — and more inclined to consider a finding of fraud.

Lease-options are now a risky business in Texas. The net effect of the burdensome requirements and stiff penalties applicable to executory texas lease agreement with option to buy has been to greatly inhibit their use. Sensible investors avoid them. Most real estate lawyers will not do them at all, since failure to comply with even the smallest requirement may trigger significant liability for the attorney preparing and filing the various disclosures and documents.

Find a good real estate lawyer, one with courtroom experience. Pay attention to what he or she says about how a judge or jury will react to your proposed deal. A good lawyer knows that real estate transaction documents should always be drafted as if they will one day need to be defended in court.

Information in this article is proved for general educational purposes only and is not offered as legal advice upon which anyone may rely. Legal counsel relating to your individual needs and circumstances is advisable before taking any action that has legal consequences. Consult your tax advisor as well. This firm does not represent you unless and until it is retained and expressly retained in writing to do so.

All rights reserved worldwide. Willis is board certified in both residential and commercial real estate law by the Texas Board of Legal Specialization. More information is available at his web site, http: Introduction Lease-Options have always been a favorite tool of Texas real estate investors.

The Pure Option to Purchase Before continuing our discussion of lease-options, it is worth remembering that there is such thing as a stand-alone option to purchase, disconnected texas lease agreement with option to buy a lease. What are executory contracts and why do lease-options fall within this category? Requirements Just for the record, one can still do a long-term lease-option or other types of executory contracts—but consider the requirements.

Stacking Short-Term Options What about the possibility of stacking six-month option contracts—i. Statute of Frauds Applies All preferential rights to real estate, including lease purchases and lease options, texas lease agreement with option to buy be express not implied and be in writing in order to comply with the statute of frauds.

The Reality of the Courtroom Why not just evade the executory contract rules and march merrily forward? Conclusion Lease-options are now a risky business in Texas.

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View all Local Real Estate forums. I have a buyer that is interested in as lease-purchase agreement. I have no experience with these. Curious if anyone has suggestions for someone in the New Braunfels, Texas area who could help with this. Matt, contact the best couple of RE agents and get referrals for RE attorneys. I know one in Austin who could write this contract. Let me know if you need his name.

But that's the safe way to do it. Use caution when obtaining any advise or contracts out of state. The main trigger point is that if you lease a house as a primary residence with a option that is longer than one year, the contract then becomes what is called an executory contract and is not allowed.

This is a broad stroke of the brush, but you can get more detailed info if you know the trigger points. There are also some hoops through which you must jump to keep in line with Dodd Frank which may be repealed or modified soon. Alan Cesker is an attorney in Austin that has spoken on this topic at REIAs and has done other work for me in the past. PM me for contact info if interested. These are not for the faint of heart Matthew.

Texas has special regulations on these types of transactions. Guy Gimenez and Clifton Kaderli. No, you can do leases combined with an option to purchase where the option exceeds the day mark. Read this and tread lightly, in my opinion. You'll note the change of requirements for lease options that last over days. Do not attempt to do a lease purchase in Texas. Simply, do a real owner finance. You can lose your entire investment if you do not do these things exactly right.

Even if you aren't in TX if you aren't familiar with lease options then there is a lot to consider to make it successful for the buyer and of course for you.

I'm guessing this is a house you own? Unless you are going to do a ton of these like I do, it's not worth your time to pay an attorney to draft docs really. I thought about owner financing. I've read a bit on them but never executed one while I still have mortgage on the property.

Matthew Carducci Owner finance is fine with an underlying mtg, but every deed of trust, I say every, but I've done title research for a hedge fund and out of thousands of searches to verify clear title I've never seen a DOT that didn't have a due on sale clause. That does not exist. There is no such thing as "triggering" a DOS. In 14 years and over deals I've never had any issue whatsoever. Suggest you read up on the topic.

I spoke with an investor this past summer and he told me a practice he has done was to separate out the lease and the option side into two separate contracts. Basically the buyer would sign a lease to occupy your property as a tenant for 1 yr or whatever timeframe you agree upon and a separate agreement of the option to buy the property at a time in the future.

This way they are both exclusive to each other from a legal standpoint as one is just a lease and the other only an option. This conversation was back in August so I might be hazy on the details but that is the overall idea I took away from that part of the conversation. I've never done one and it could still be illegal but I thought I'd share just in case someone could correct me or provide additional insight. Lock We hate spam just as much as you.

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Real Estate Forms Leases and other legal documents for landlords. Log In Sign up. Good morning BP, I have a buyer that is interested in as lease-purchase agreement. The following is not legal advise: Matthew Carducci These are not for the faint of heart Matthew.

So are you saying in general any lease to purchase is limited to less than one year? Thoughts on this websites input: I like the website but don't recall if it's updated regularly. Overall, a good resource though. Matthew Carducci Stay away from agents and executory contracts like lease purchase and contracts for deed.

Y'all are fantastic really appreciate the candidness. Yes, Italian Sicilian in New Braunfels, and we love it here. Cheers from New Braunfels. It's a great town and I love it here. Free eBook from BiggerPockets! Download the eBook Now. Log in Sign up. Log in Email Password Forgot password?