Lease Options – FAQs
What is an Option?
In simple terms, property options generally fall into one of two categories.
- A right in favour of a Buyer. This gives the buyer the right to purchase a property or land from a Seller on or before a particular date. The Buyer does not have to buy though –only if they choose to do so. If the Buyer does choose to buy, the price to be paid will be the price agreed in the Option.
- A right in favour of a Seller. This gives the Seller the right to require that the Buyer purchases the property usually on or after a certain date or on the occurrence of certain event. But the Seller does not have to sell- only if they choose to do so. If the Seller chooses to sell the Buyer must purchase the Property. The price to be paid will be the price agreed in the Option.
Most Options are like Number 1 above. Have a look at a working example of how a Lease Option may work.
A working example
Why it works for a Buyer
Many of the options we often prepare (although the numbers are for example only) would be:
- A Seller grants a Buyer the Option to buy their property.
- The price agreed is, say, £150 000.
- The Option Period is, say, 24 months.
- The Buyer pays the Seller a sum of, for example, £400 per month.
- The Buyer is given the right to let the property and retain the rent, for example, £500 per month.
Broadly speaking, this means that the Buyer can buy the Property from the Seller at a price of £150 000. The Buyer can do this at any time during the next 24 months.
Why would a seller do this?
For any deal to work it must be attractive for Buyer and Seller.
The £400 per month in the example above.
If the Buyer chooses not buy the property then the Property will be returned to the Seller at the end of the option period.
Many of you tell us that you sellers:
- Ideally want to sell but perhaps can’t find a buyer.
- Are in financial difficulty.
- Wants to emmigrate
- Needs to relocate
- Family circumstances
- and many more
Timescales
A question we are frequently asked is: how long does it take to do a lease option. Salesmen will tell you a minute, an hour or over a coffee ! We have done a Lease Option in 48 hours but we have attached a chronology of events in two scenarios:
Where the vendor has chosen NOT to be legally represented:
| Working Day 1 | Heads Of Terms received form the investor detailing the outline terms of the lease option as agreed between the vendor and investor | |
| Days 2-3 | Option drafted and despatched to the investor for initial approval (by email if possible) | |
| Days 3 – 4 | Investor returns to us with his comments whether option is approved or any amendments are required | |
| Day 5 | The approved Option document sent to the unrepresented vendor with other associated documents | |
| Working Day 10 | Docs signed by vendor and received by us | |
| Day 11 | Docs sent to investor for signature together with the issue of a formal advise on the transaction | |
| Day 12 -13 | Investors signs docs and returns them to us | |
| Day 14 | Investors signed documents arrive and completion occurs | |
| Day 15 onwards | Land Registry formalities attended to |
Read the 48 hour Lease Option story
We recently completed an Option for Cyril Thomas of the Essex Property Network in 48 hours Cyril kindly agreed to sharing his story.
Saving the day with a Lease Purchase Option in 24hrs
It was one day before the completion of a sale that was set-up to be quite a lucrative cashflow property deal. Due to the goodwill of the vendor, I had already been allowed access to the house and had spent a small fortune improving it for the first set of tenants. It was mid-day when I received a phone call from my solicitor informing me that my mortgage lender had made some outrageous demands that could possibly take me two weeks to accurately fulfil.
To add to the pressure, the vendor’s lenders had given them a completion deadline that would arrive in the next three days. If they did not meet the deadline, they’d be levied with a considerable amount of interest that neither they nor I was willing to pay.
Within the space of 2 hours I made near to 10 phone calls trying to find a solution to what seemed to be an unsolvable problem. After making all of the enquiries I decided that if I could get a lease purchase option on the property I could possibly end up with a better transaction than first anticipated. After making a few more phone calls things still looked bleak as all the solicitors that I knew where giving me time estimates of two weeks or more for the completion of the lease purchase option contract. It was then that I decided to call Shimon Ruddich (a highly recommended options lawyer). He was actually on vacation at the time but he kindly answered my call and put me in touch with his colleague (Paul Gelder).
After a brief talk with Paul, it was confirmed that he’d try his best to complete the option within 24hrs! I then called the vendor and managed to convince her to allow me to place an option on the property. She agreed because I paid her a small deposit upfront and offered to take on all of the costs associated with the property for the length of the lease purchase option. I also offered to cover all of her legal fees.
Less than twenty four hours later, the lease purchase option was complete and verified by both the vendor’s and my solicitors. Within forty eight hours the whole transaction was complete. The deal was saved and the outcome was more favourable than initially expected.
A big thank you to MS Law for saving the deal.
To your success,
Cyril Thomas
Host of the Essex Property Network
http://www.essexpropertynetwork.co.uk
Where a Vendor has chosen to be legally represented?
If a vendor has chosen to be legally represented this will obviously affect time scales.
There may, or may not be, more negotiation over the terms of the Option and we are obviously reliant upon the sellers solicitors acting promptly.
What is a Power of Attorney?
A Power of Attorney is a legal document underwhich one person gives another person or persons the power to take decisions with regard to their financial affairs and/or their health and personal welfare.
