Rent to buy: Can you have an option to purchase in your lease?
What is an option to purchase?
An option to purchase is an agreement where the tenant has the right to purchase the property at the completion of the lease. The tenant has a specified period where they may exercise this option however, they must make additional payments which go towards the potential ownership.
Whilst option to purchase clauses are usually reserved for commercial properties, there has been an increasing number of ‘rent-to-buy’ or ‘option to purchase’ clauses being included in residential leases. The increasing popularity has been attributed to tenants seeking more affordable options for owning property.
Can the courts enforce an option to purchase?
In Mr Le v Tran (2017) NSW ConvR 56-374, the NSW Supreme Court enforced the right to buy a property if an option to purchase clause was included in the lease.
A lease between Mr Le (the landlord) and Ms Tran (the tenant) included an option to purchase clause. The tenant defaulted on her option to purchase payments and the landlord (Mr Le) sought to terminate the lease after serving non-payment notices. The tenant argued that the landlord misled her and that the option to purchase clause should be terminated and that she shouldn’t make payments for the option to purchase.
The court decided that the tenant was a businesswomen who had requested the rent-to-buy transaction in the first place, and that she understood the nature of the agreement she was entering into. The lease option was found to be enforceable.
What does this mean for you?
This case is a good example of how lease options will be enforceable if it can be proven that the parties knew what they were getting into.
If you are interested in including such an option to purchase in your lease, or have any questions regarding this type of arrangement, please contact: