What Are Lease-To-Own Agreements? Here Is What You Need To Know

If you are thinking about getting into a lease-to-own agreement, also called an “executory contract” or “rent-to-own” agreement as either a landlord or a tenant, it’s important to understand the basics of how these agreements are handled under Texas law.

Outlining The Parties Involved In A Lease-To-Own Agreement

Lease-to-own agreements can be very complex because they assign dual roles to the parties involved in the transaction, as follows:

• Tenant-buyer – The tenant-buyer is the party who is renting the land with the intent to buy it from the landlord-seller.
  
  
• Landlord-seller – The landlord-seller, as the name suggests, is the owner of the property who wishes to sell it, and also functions as a landlord until the property is converted from a rental into a sale.
  

Under the applicable laws, the roles and responsibilities of both parties can get very confusing. Rentals are straightforward, as are property sales. But in a lease-to-own agreement, these responsibilities are blended and can often result in difficult legal situations.

This can result in issues when landlord-sellers attempt to evict tenant-buyers for nonpayment, or when a tenant-buyer is faced with a landlord-seller who refuses to abide by the terms of the initial agreement. 

Understanding Lease-To-Own Agreements And How They Work 

Lease-to-own agreements are covered by Chapter 5 of the Texas Property Code. Whether they’re called executory contracts, lease-to-own agreements, or rent-to-own agreements, these all refer to the same thing.

In this type of contract, a portion of a tenant-buyer’s monthly rent payment is set aside, and credited toward their down payment in the future. Typically, after a certain amount of money is “paid in,” the tenant-buyer may purchase the property in one of two ways:

1. Convert the transaction from a lease into an owner-financed sales transaction. In this transaction, the tenant-buyer gets a warranty deed. Then, the tenant-buyer provides the landlord-seller with a note of deed and trust. Essentially, the tenant-buyer begins to pay a mortgage payment directly to the landlord-seller, rather than rent.
   
   
2. The landlord-seller agrees that the tenant-buyer may use money paid into the lease-to-own agreement to obtain financing from a bank or other third-party lender. In this case, the property is sold, but the landlord-seller is paid the full amount by the lender, then the tenant-buyer repays the bank, similarly to a traditional mortgage. 

In Texas, there are also lease-to-own agreements for personal property (e.g., think a rent to own shop for a TV). These agreements are subject to another set of rules not governed by Chapter 5 of the Texas Property Code.

Consult With A Lawyer Before You Sign A Lease-To-Own Agreement

Whether you are going to be a landlord-seller or a tenant-buyer, you need to consult with an Ellis County landlord tenant attorney before entering into a lease-to-own agreement.

There is a reason that these agreements are becoming less and less common in Texas. They are extremely complex, and the responsibilities of each party are very hard to understand for laymen, and even some lawyers.

If you are certain that you want to enter into a lease-to-own agreement, working with an Ellis County landlord tenant attorney will help you understand your obligations and rights as either a landlord-seller or a tenant-buyer, and protect you from difficult legal situations. 

Protect Your Rights With The Help Of An Ellis County Landlord Tenant Attorney

Whether you’re about to enter into a lease-to-own agreement, or you are already involved in one of these agreements and you are facing eviction, noncompliant tenants, or other legal issues, we are here to help. Contact us now to schedule a consultation, and get the professional assistance you need to protect your interests.