Lease Purchase Agreement

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A lease purchase agreement is a contractual arrangement that combines a lease agreement 's components with a purchase agreement based on a specific set of rules. It helps all tenants lease a property for a specified period and allows them to purchase the property at a later date. Let us learn more about the important aspects of a lease purchase agreement below.

Components of a Lease Purchase Agreement

Lease purchase agreements can differ based on the terms negotiated between the parties. However, the most common components of such legal agreements include the following:

  • Parties: The lease purchase agreement identifies the parties involved, namely the landlord or seller and the tenant or buyer. It includes their legal names, addresses, and contact information.
  • Property Description: The agreement specifies the details of the property being leased, including the address, unit number. It may also include any unique identifiers or descriptions to identify the premises accurately.
  • Lease Terms : This section outlines lease terms which include the duration of the lease period and the monthly rent amount. The same also includes payment due dates and any late payment penalties or grace periods.
  • Purchase Option: The agreement includes provisions regarding the purchase option. It also details the terms under which the tenant or buyer has the right to purchase the property. This includes the purchase price, the option fee, and the timeframe in which the option can be exercised.
  • Rent Credits: A portion of the monthly rent payment in the lease purchase agreement may be credited towards the eventual purchase price. This section specifies the amount or percentage of rent credits, their application, and all kinds of limitations.
  • Maintenance and Repairs: The agreement addresses the responsibilities of both parties regarding property maintenance and repairs. It defines who is responsible for routine maintenance, repairs, and any major improvements or renovations during the lease period.
  • Default and Termination: This section outlines the consequences of default by either party, including remedies, penalties, or potential termination of the agreement. It may also include provisions for early termination, such as if the tenant/buyer decides not to exercise the purchase option.
  • Governing Law : The lease purchase agreement specifies the governing law that will be used to interpret and enforce the terms of the agreement. This ensures clarity and consistency in legal matters related to the agreement.
  • Signatures: The agreement requires the signatures of both parties to indicate their understanding and acceptance of the terms outlined in the lease purchase agreement. This validates the contract and makes it legally binding.

Benefits of a Lease Purchase Agreement

Landlords or sellers and tenants or buyers must carefully review and understand the terms of the lease purchase agreement. Meanwhile, they must also be aware of the following benefits:

  • Allows Lock-In Purchase Price: With a lease purchase agreement, the purchase price is typically agreed upon upfront. This can be beneficial in a rising real estate market. The process allows the tenant or buyer to secure a purchase price that may be lower than the market value at the time of exercising the purchase option.
  • Evaluates the Property and Neighborhood: The lease period in a lease purchase agreement allows tenants to evaluate the property or neighborhood. This way, they can check the overall suitability before committing to the purchase. It allows them to experience firsthand the living conditions and assess if it meets their long-term needs.
  • Offers Rent Credits: Some lease purchase agreements offer rent credits, where a portion of the monthly rent payments is applied towards the eventual purchase of the property. These rent credits can accumulate over time and contribute towards the down payment or reduce the purchase price, making home ownership more affordable.
  • Determines Maintenance Responsibility: The tenant or buyer may have certain maintenance responsibilities during the lease period depending on the agreement. This can provide a sense of pride and ownership, as they have the opportunity to take care of the property as if it were their own before officially becoming homeowners.
  • Addresses Finances: A lease purchase agreement allows tenants who need secure financing to improve their creditworthiness and financial situation during the lease period. It also helps increase the likelihood of obtaining a mortgage loan when they exercise the purchase option.
  • Guarantees Equity Building: A tenant or buyer makes monthly payments, builds equity in the property, and potentially benefits from any appreciation in its value. So, they are able to position themselves for a stronger financial position when transitioning from tenant to homeowner.
  • Limits Downside Risk: A tenant or buyer can walk away from the agreement without any obligation to purchase the property if they decide not to exercise the purchase option at the end of the lease period. This provides some protection against potential market downturns or changes in personal circumstances.

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Why Hire a Lawyer for Your Lease Purchase Agreement

One must approach a lawyer when considering a lease purchase agreement. It is a wise decision that can help navigate the complexities of the legal process and ensure the protection of rights and interests. Here are key reasons why consulting with a lawyer is beneficial when dealing with a lease purchase agreement:

  • Contract Review : A lawyer can thoroughly review the lease purchase agreement, identifying any potential pitfalls, ambiguous terms, or unfavorable clauses that may put one at a disadvantage. They can explain the legal implications of the agreement and advise clients on how to negotiate or modify the terms to better align with their interests.
  • Negotiation Support: Lawyers can assist you in negotiating the terms of the lease purchase agreement. They can help craft favorable provisions and address specific concerns. It also helps protect everyone’s rights and interests throughout the negotiation process. Their guidance can enhance a client’s bargaining position and increase the likelihood of reaching a mutually beneficial agreement.
  • Legal Documentation: Lease purchase agreements involve complex legal documentation. A lawyer can draft or review the agreement to properly address all necessary elements and legal requirements. They can help draft clear and concise provisions, minimizing the potential for future disputes or misunderstandings.
  • Legal Compliance: A lawyer can ensure that the lease purchase agreement complies with applicable legal requirements. Examples include disclosure obligations, zoning regulations, and fair housing laws. This helps avoid legal issues and potential disputes in the mere future.

Key Terms for Lease Purchase Agreements

  • Option Consideration: A non-refundable fee paid by the tenant/buyer to the landlord/seller for the right to purchase the property within a specified timeframe.
  • Purchase Price: The agreed-upon price at which the tenant/buyer can purchase the property upon exercising the purchase option, typically determined upfront or based on a predetermined formula.
  • Rent Credits: A portion of the monthly rent payments that are applied as credits towards the eventual purchase of the property, accumulating over the lease period.
  • Maintenance and Repairs: The division of responsibilities between the tenant/buyer and landlord/seller regarding property maintenance and repairs during the lease period, including the allocation of costs.
  • Default and Remedies: Provisions outlining the consequences of default by either party, such as late payment penalties, default cure periods, or the right to terminate the agreement, and the available remedies for breaches of the lease purchase agreement.

Final Thoughts on Lease Purchase Agreements

A lease purchase agreement offers a unique opportunity for tenants aspiring to become homeowners and landlords seeking potential buyers. This contractual arrangement combines elements of a lease and a purchase agreement, allowing tenants to lease a property while providing them with the option to buy it in the future. The lease purchase agreement provides flexibility, as tenants can test the property and neighborhood before committing to the purchase. Both parties also get benefits such as rent credits and the ability to lock in a purchase price. However, they must approach the agreement clearly, understanding its terms.

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Advantages of Using a Lease Purchase to Buy Property

Advantages for both tenants and sellers

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Lease Purchase Payments

  • Advantages for Tenants and Sellers
  • Advantages for Tenants Explained
  • Advantages for Sellers Explained

The Bottom Line

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A lease purchase is a written agreement between a landlord and tenant, giving the tenant an option to purchase the property at some future point in time. The nature of this type of real estate transaction can vary a great deal, because virtually all the terms of a lease purchase are negotiable. For example, they may or may not include a set price. When they do, the price might be the appraised value of the property at the time of purchase or another agreed-upon value.

Learn more about how lease purchase payments work and the advantages they have for both tenants and sellers.

Generally, the seller will want the tenant to give a non-refundable payment in advance to "purchase" the option to later buy the property. This is called an "option" payment, and it can be any amount. It "locks in" the tenant's option to purchase, even if the landlord later has a change of heart.

Along with the purchase price, the lease agreement sets the size of the down payment and the timetable for making it. The parties can agree to a portion of rents paid going toward this down payment. Of course, this would typically mean an increase in the amount of rent each month. But some buyers might prefer it as a method of forced savings toward a down payment.

Advantages of Lease Purchases for Tenants and Sellers

Advantages of lease purchases for tenants explained.

There are several reasons why someone might want to lease a home with the option to purchase it later. 

  • Time to qualify for a mortgage: They may need some time to resolve credit problems so they can qualify for a traditional mortgage.
  • Time to save for a down payment: They may need time to save up a down payment, and they don't want to lose the home in the meantime.
  • Don't have to move when the lease ends: Their lease is already as long as the landlord will agree to, and they want the option to buy rather than have to move again.
  • Personal investment: They have already invested substantially in the property via repairs and improvements. Often, the value of this work can be applied to down payments or against the purchase price.

In each of these cases, having the option to purchase at the end of the lease helps ensure a smooth transition from tenant to new owner. And if the tenant decides they don't want to purchase the property at the end of their lease, that is OK, too.

Advantages of Lease Purchases for Sellers Explained

Lease purchase arrangements can benefit owners of rental properties as well.

  • Increased return on investment: The upfront option payment can increase the return on investment, and it stays with the owner even if the tenant does not purchase the property.
  • Locked-in sale price: The owner can lock in a reasonable price for the home in advance. 
  • Attracts responsible tenants: Offering a lease purchase option can attract responsible tenants who are interested in long-term occupancy.
  • Keeps home in good condition: If the tenant thinks they may end up owning the home, they might be more inclined to keep it in good condition throughout the lease period.

If you're a landlord, a lease purchase agreement can help ease some of the most common concerns about owning a property: finding great tenants, keeping the home in good condition, and eventually selling the home for a price you're happy with.

If you're a homeowner stuck with a home that isn't selling, and you must move for some reason, or if you're a real estate investor with multiple properties, a lease purchase might be a viable option for nailing down a sale and getting a good price for your property. If you've lost a home, have credit problems, or just can't get a down payment together in a short period of time, a lease purchase can work for you as a tenant as well. 

Whichever side of the lease-purchase agreement you're on, the deal can be a win. But since all the aspects of this private deal are up to the individual parties, consider your needs and interests carefully when hammering out the terms.

Key Takeaways

  • A lease purchase is a written agreement between a landlord and tenant, giving the tenant an option to purchase the property at some future point.
  • If you're a tenant, having the option to purchase at the end of the lease helps to ensure a smooth transition from tenant to new owner.
  • If you're a landlord, a lease purchase agreement can help ease some of the most common concerns about owning a property.

NoLo. " The Basics of Rent-to-Own Agreements ." Accessed Aug. 31, 2021.

National Association of Realtors. " Lease-Option Purchases ." Accessed Aug. 31, 2021.

CCIM Institute. " Lease Option or Installment Sale? " Accessed Aug. 31, 2021.

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What Is a Lease Purchase Agreement and How To Structure It?

Andrew Paniello

Andrew is a freelance writer with nearly a decade of experience. His primary areas of interest include financial, real estate, and macroeconomic topics. In addition to working in the financial planning and real estate sectors, Andrew has also earned degrees in finance and political science from the University of Colorado.

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There are many possible paths to becoming a homeowner. In some cases, especially if you’re a first-time home buyer, you might consider a “rent to own” program, often referred to as a lease purchase agreement.

Depending on your current financial and personal situation, a lease purchase agreement might help you eventually buy a home that would otherwise be out of reach. These agreements are popular because they allow you to “test drive” your home without needing to make an immediate, long-term commitment.

Of course, as is the case with any long-term homeownership contract, lease purchase agreements will have drawbacks. Before signing a lease purchase agreement, it will be critical to ensure you understand exactly what you’re agreeing to.

What Is a Lease Purchase Agreement?

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What are you looking to do?

Sometimes referred to as a lease purchase contract, a lease purchase agreement is a specific type of rental contract that allows people who are renting a property from a landlord to eventually become the owner.

Lease purchase agreements offer an alternative path to homeownership, making it possible to someday become a homeowner without needing to make a full down payment right away. If there’s a property currently offered as a rental, a lease purchase agreement can be used to eventually trigger full homeownership.

How Do Lease Purchase Agreements Work?

With a lease purchase agreement, a renter agrees to pay a landlord an upfront fee and extra toward the monthly rent payment. The extra payment is set aside to act as a down payment toward the future purchase of the home. For a lease purchase agreement to work, both parties need to agree to a few basic terms.

The landlord must be willing to sell

The current owner of the property (the landlord) will need to be willing to sell the property once the leasing period has expired – if they’re not interested in selling, then initiating a lease purchase agreement will simply not be possible.

The renter intends to buy

The renter should have the intention to purchase the property at the end of the term. If the renter declines to exercise their lease purchase right, the landlord then has the right to either continue renting the property (to either the original renter or a new one) or sell the property to another buyer.

The landlord and renter agree to purchase terms in advance

The parties will also need to agree upon the terms before the purchase. This requires negotiating the length of the lease (often 1 – 2 years), as well as the eventual selling price of the home. When property markets are exceptionally volatile, negotiating a future selling price will often be more difficult.

If the renter does decide to purchase the property at the end of the lease term, they will then have the exclusive right to do so – this means other parties, regardless of what they’re offering, will not be able to outbid them for the property.

Renter must be able to secure financing

For the current renter (future buyer) to take ownership of the home, they will need to secure financing once the lease has expired. With most lease purchase agreements, failure to secure a mortgage will nullify the terms of the initial contract.

How Can You Structure a Lease Purchase Agreement?

While most lease purchase agreements follow the same general structure, it’s important to carefully review any lease purchase agreement you’re considering and ensure you know exactly what you’re getting into. Some common questions to consider are:

What is the length of the lease period?

This will describe the amount of time you can live in your home before deciding whether or not to exercise your right to buy. The typical lease period is 1 – 2 years.

How much of each month’s rent will contribute to the future down payment?

If you plan to buy the home at the end of the lease period, you’ll need to set aside enough money to cover at least a portion of the down payment. Even mortgage programs like Federal Housing Administration (FHA) loans require a down payment of 3.5%. So be sure to set aside enough money from each monthly payment to cover the down payment before the end of your leasing period.

What upfront fee will the renter be paying?

The renter usually pays a nonrefundable fee to the landlord as a condition of agreeing to a lease purchase agreement. This fee can be negotiated, but it often falls between 1% – 5% of the home’s purchase price. This is similar to a security deposit or the earnest money you pay when you make an offer on a home. However, you may not get it back if the sale falls through.

Who is responsible for taxes, insurance and other financial aspects?

Assuming the property is still in the landlord’s name, they’re usually responsible for covering the costs of property taxes and homeowners insurance. They’re also responsible for making the necessary payments into escrow or to their insurer and local tax authority to cover these costs. If the landlord wants the renter to cover these costs or take responsibility for these payments, they will need to agree in advance.

Also, if there are home repair and maintenance costs during the lease period, the renter and landlord will need to decide in advance how these costs should be covered.

What will the future sale price of the home be?

In most cases, this value will be determined by the current fair market value (FMV) plus an additional premium to account for future appreciation. Lease purchase agreements with a relatively longer term (such as 3 years instead of 1 year) will typically include a higher premium to account for additional appreciation and uncertainty.

Ultimately, the lease purchase agreement should clearly answer any questions you might have. If you’re unable to know what you’ll be paying, what your rights and responsibilities are or any other detail, then the purchase agreement might need to be amended.

Generally, it’s a good idea to work with an experienced real estate attorney who can help you identify red flags and answer questions.

What Is a Lease Purchase Agreement vs. a Lease Option Agreement?

A lease purchase agreement and a lease option agreement describe similar concepts, but there are a few important differences between these types of contracts. A lease purchase agreement creates a legal commitment for both parties to initiate a transaction once the term has expired. While it is possible to get out of a lease purchase agreement, doing so can be costly. A lease option agreement, on the other hand, represents a softer commitment.

What Are the Pros and Cons of Lease Purchase Agreements?

As you’d probably expect, a lease purchase agreement presents benefits and drawbacks for both buyers and sellers. Be sure to consider the pros and cons before deciding to enter into an agreement.

PROS of Lease Purchase Agreements 👍

One of the most obvious benefits of a lease purchase agreement is that it gives buyers more time in the home before fully committing to becoming a homeowner.

By agreeing to a sale price in advance, the renter may get a good deal on a home if prices are set to increase in the near future. If prices drop, the landlord may make a larger profit from the sale.

By having a few years to prepare for the homeownership process, prospective buyers can improve their credit score, save up for a down payment and build savings that can later be used for other aspects of homeownership.

Before the lease ends, the buyer can potentially build future equity they can access once the home is in their possession.

Landlords and renters can benefit from sharing maintenance expenses, especially if the home is a fixer-upper. By using a lease purchase agreement, both the landlord and renter can also save on listing fees and other home buying costs.

CONS of Lease Purchase Agreements 👎

If the tenant chooses not to exercise their option (or is unable to secure a mortgage), all money that has been going toward their down payment is forfeited. If they’ve been living at the property for an extensive period of time, this can potentially cost them several thousand dollars.

Additionally, it’s important to note the option fee is nonrefundable. In the end, if someone has a lease purchase agreement they don’t end up using, they’ll likely be financially worse off than if they had simply rented all along.

A lease purchase agreement can help renters with lower credit make the transition to homeownership. But if they aren’t able to qualify for a mortgage loan, they may be left having paid more for a rental than they should have.

A Test Drive For Your Home!

A lease purchase agreement is a lot like leasing a car – it allows you to test out a major investment before making a full commitment. However, in most cases, you should only use a lease purchase agreement if you’re seriously considering becoming a homeowner. Otherwise, you’ll end up overpaying for rent.

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The Short Version

  • A lease purchase agreement is a specific type of rental contract that lets people who are renting a property from a landlord eventually become the owner
  • Depending on your current financial and personal situation, a lease purchase agreement might help you eventually buy a home that would otherwise be out of reach
  • If someone has a lease purchase agreement they don’t end up using, they will likely be financially worse off than if they had simply rented all along

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What is a Lease Purchase Agreement?

  • Posted on September 26, 2023
  • In lease purchase agreement

In the world of real estate, there are various creative methods of buying and selling properties, one of which is the Lease Purchase Agreement. If you're considering entering into this type of arrangement, it's essential to understand what it entails, how it's structured, and the benefits it offers. In this blog, we'll explain the definition of a Lease Purchase Agreement, explore its structure, and highlight its potential benefits.

Definition 

A Lease Purchase Agreement, often referred to as a rent-to-own agreement, is a contractual arrangement that allows a tenant to lease a property with the option to purchase it at a predetermined price at the end of the lease term. This arrangement combines elements of a traditional lease and a purchase contract, providing an alternative path to homeownership for individuals who may not be ready to buy a property outright.

How it’s Structured 

Thinking about a lease purchase agreement? Take a look at how it's structured:

Lease Period

In a Lease Purchase Agreement, the tenant enters into a lease agreement with the property owner for a specified period, usually ranging from one to three years. During this time, the tenant pays rent to the owner, just like in a standard lease arrangement.

As part of the agreement, the tenant typically pays an upfront option fee or option consideration. This fee gives the tenant the exclusive right to purchase the property at a predetermined price during or at the end of the lease term. Unlike a security deposit, the option fee is usually non-refundable.

Purchase Price

The purchase price of the property is agreed upon at the beginning of the lease term. This price remains fixed, regardless of any fluctuations in the real estate market during the lease period. Having a fixed purchase price provides the tenant with clarity and stability regarding the future purchase cost.

Rent Credits

A portion of the monthly rent paid by the tenant may be allocated as a rent credit toward the eventual purchase of the property. These rent credits accumulate over the lease period and are applied towards the purchase price when the tenant decides to exercise the purchase option.

Exercising the Purchase Option

At the end of the lease term, the tenant has the option to purchase the property at the predetermined price. If the tenant decides not to proceed with the purchase, they can simply walk away from the arrangement without any obligation to buy the property.

Benefits 

Path to homeownership.

For individuals who may not qualify for a traditional mortgage due to credit or financial constraints, a Lease Purchase Agreement offers an opportunity to work towards homeownership while leasing the property.

The fixed purchase price ensures that the tenant will buy the property at the agreed-upon price, regardless of market fluctuations. This can be advantageous if property values are expected to rise.

Time to Evaluate

The lease period allows the tenant to experience living in the property before committing to a purchase. This gives them time to evaluate the neighborhood, amenities, and whether the property meets their long-term needs.

Financial Flexibility

A Lease Purchase Agreement requires a lower upfront investment compared to a traditional home purchase, making it a more financially feasible option for many potential buyers.

Investment Potential

If the property appreciates in value during the lease period, the tenant can benefit from the increased equity when they exercise the purchase option.

Work with the Experts at Rochford Law 

Before entering into any real estate agreement, it's recommended to consult with legal professionals. That’s where our team at Rochford Law comes in. We’ll ensure that all aspects of the contract are clear and legally sound. 

Whether you're a tenant looking to become a homeowner or a property owner considering lease options, the Lease Purchase Agreement presents an intriguing avenue worth exploring.

Contact us today to learn more. 

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Lease Purchase Agreements in Real Estate: A Buyer's and Seller's Guide

A lease purchase agreement might be a good option if you're struggling to sell your house or can't afford to buy one outright. Let me explain how it works and what you need to consider if you're interested in this kind of deal as a buyer or seller .

What's a Lease Purchase Agreement?

A lease purchase agreement in real estate is like a rent-to-own deal between a tenant and a landlord. Here's the deal: the tenant can buy the property later on. To secure this, the renter pays an upfront fee to the seller at an agreed price, locking in the right to purchase the property.

They both settle on the future purchase price of the house when the lease ends. Usually, part of the rent each month goes towards a down payment. But, the renter needs to be sure they can get a mortgage by the end of the lease, or else they lose the option to buy.

Lease Option

Lease purchase agreements are mixed up with lease options a lot. They both involve that upfront fee that's not refundable. During the lease, the landlord can't sell the property to someone else, and the tenant gets the chance to buy later. However, there's a key difference.

In a lease option, the seller only promises to sell. However, in a lease-purchase agreement, both parties commit to the sale unless someone breaks the deal or the buyer can't get a mortgage. Buyers usually cover maintenance, property taxes, and insurance costs. Also, they might pay more rent than usual to chip in for the down payment.

How to Structure a Lease Purchase Agreement

Lease purchase agreements usually involve two contracts: one for leasing and the other for the end-of-lease sale. These contracts will have rules that say breaking one part, like missing a payment, might cause a problem in the other contract.

Lease Duration

The leasing part will be like a regular lease but with extra things, like making the buyer pay for maintenance, taxes, and insurance. It will say how long the lease is and how much monthly rent to pay. Usually, lease purchase agreements have longer leases, maybe up to 3 years.

Watch out for special things like the option fee, purchase price, and down payment. Both sides agree to an option fee that makes the landlord sell to the tenant later, even if the landlord changes their mind. But this fee can’t be taken back, and it can be any amount.

This part also says some rent money goes toward a down payment. For example, if someone pays $2,000 a month on a $250,000 home and $400 each month goes to a down payment, after a 24-month lease, they could use $9,600 (3.8%) as a down payment. But if they change their mind and don’t buy, they lose the down payment.

Sale Contract

This part explains how buying works after the lease ends. No matter how long the lease is, both sides agree on a price (based on the home’s value) when they start renting. Usually, the price is higher to cover any increase in value. They both must stick to this price, no matter what happens in the market.

The buyer needs to get a mortgage loan for the property. If the tenant couldn’t get a mortgage before the lease, they can show the agreed-upon down payment plan to the lender for a better deal. When the lease ends, the lender gives the money to the seller to change the property's title.

Having a real estate lawyer check this contract before signing is smart. Sometimes, if you can’t get a loan, you might have to pay back everything, even if you can’t afford it. That’s why it’s good to talk to a lawyer before agreeing to any real estate deal.

Pros and Cons of Lease Purchase Agreements for Buyers

When someone signs a lease-purchase agreement, they'll need to be okay with taking some risks to get rewards later on.

Pros for Buyers

  • Time to Get Financially Ready

Renting before buying lets you save money for a down payment and beef up your income. This helps you become more capable of owning a home. Plus, it lets you handle debts and shows you can pay bills on time.

  • Locking in Price and Property

When market prices keep changing, saving for a house is tough. With a lease purchase deal, you can pick your dream home and its price without paying everything upfront.

  • Trying Out the Home and Area

You might lose some money if you decide the place isn’t right for you. But it's a chance to determine if the property and neighborhood suit your long-term plans.

Cons for Buyers

  • Losing Your Money

If you can't boost your finances enough to qualify for a mortgage by the deadline, you kiss goodbye to your option fee and extra rent you paid to the seller. Also, you might need to move, which can cost you more.

  • Seller's Financial Issues

If the seller doesn't keep up with payments like insurance or property taxes , you might face problems. It could stop you from buying the property or even lead to you being evicted.

  • Seller Backing Out

If the house value shoots up during your lease, the seller might ditch the deal if there’s no penalty in the contract.

Pros and Cons of Lease Purchase Agreement for Sellers

The homeowner must be ready to take some risks if they want to sell their house and get potential rewards.

Pros for Sellers

  • Sell a Hard-to-sell Home

A lease purchase agreement might be the answer if selling the house the usual way didn’t work out.

  • Make Money Even if the Sale Fails

The upfront fee, extra rent, and regular rental income can be better than having the property empty.

  • Get a Responsible Tenant

Someone looking to buy might take better care of the property.

Cons for Sellers

  • Miss Out on Higher Value

Agreeing on a fixed price might not be great if the local market booms unexpectedly.

  • Problematic Tenant

Even someone wanting to buy might not take care of the place or pay rent. Evicting them can be burdensome and costly.

  • Buyers Changing Their Mind

If the home's value drops, the buyer might bail. Plus, there's no assurance they'll get a mortgage when it's time to buy.

The Bottom Line

Take lease purchase agreements seriously, just like buying a home. They help owners selling tough-to-sell houses and renters needing extra time for a loan. Always check these agreements with a lawyer before finalizing anything.

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  • Lease-Option Purchases

Quick Takeaways

  • “A lease option is a contract in which a landlord and tenant agree that, at the end of a specified period, the renter can buy the property at a specified price. The tenant pays an up-front option fee and an additional amount each month that goes toward the eventual down payment.”
  • Lease option contracts are referred to by many names, such as a “rent to own” agreement, but they all mean the same thing!
  • Make sure to get details on the structure of the deal, including the agreement length, the option fee, and whether you or the landlord are responsible for maitenance and home repairs

Source: What to Know About “Lease Option to Buy” or Rent to Own Homes ( Yahoo! Finance , Feb. 10, 2023)

Lease-Option purchases are a unique way to achieve homeownership. In a Lease-option purchase, often called “lease-to-buy” or “lease-to-own,” a renter enters into a legal contract with the owner of the property stating that a percentage of the rent will go toward purchasing the unit. Often, the purchase price and length of agreement are pre-determined. This method is great for those who need extra time to build up credit and savings or who simply want to test out an area before committing.

With record high home prices and record low inventory, would-be buyers are looking for creative ways to purchase homes, lease-option purchases included. Multiple startups have gotten in on the action, including Pathway Homes, which just spent $750 million dollars on lease-to-own options. This method can be used successfully in commercial real estate as well, especially for smaller, family-owned businesses.

Lease-Option purchases do come with a variety of tax and contract considerations. Make sure you familiarize yourself with IRS write-offs, property tax law, and IRS reclassification. The government has a variety of sources, listed above, to help you understand the ins and outs of lease-option purchases!

See References for more information.

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NAR Library & Archives has already done the research for you. References (formerly Field Guides) offer links to articles, eBooks, websites, statistics, and more to provide a comprehensive overview of perspectives. EBSCO articles ( E ) are available only to NAR members and require the member's nar.realtor login.

Lease to Own: The Basics

Lease Purchase Agreements: Benefits for Buyers and Owners ( Forbes , Feb. 16, 2023)

“A lease purchase agreement—also known as a rent-to-own or lease-to-own agreement—lets someone rent a property for a specified period of time with the promise to purchase it at the end of the lease term. The owner is contractually obligated to sell the property to the renter when the end of the term hits. Likewise, it also obligates the renter to buy the property from the owner.”

Rent-to Own Homes: How the Process Works  ( Investopedia , Nov. 4, 2022)

Rent-to-Own contracts have many important clauses that buyers need to be aware of. Depending on the contract, renters may be responsible for purchasing the house even if they can no longer afford it. Buyers also need to make sure they pay close attention to taxes, home maintenance, and how much principle will be applied to your future home. 

The Basics of Lease Options and Purchase Sales ( The Balance , Oct. 20, 2021)

“Owners of hard-to-sell properties commonly offer lease purchase agreements.4 They sell to a conventional buyer who would pay the seller cash if the property were a plum and easy to sell. Sellers generally get market value at today's prices and relief from coming out of pocket for the mortgage payment on a vacant property during the term.”

Case Studies & Examples

Out-of-State Phoenix Developers Plan Thousands of Build-to-Rent Units In Phoenix Metro ( Phoenix Business Journal , Mar. 1, 2023)

“Two out-of-state developers plan to build nearly 2,000 build-to-rent units across metro Phoenix — bringing a unique approach to the wildly popular niche that originated in Arizona and is taking the country by storm. Palm Desert, California-based Family Development currently has nearly 1,000 units at some level of construction, while Atlanta-based Trilogy Investment Co. has plans to match that number.”

Las Vegas Start Up Helps Clients Buy a Home, One Month at a Time ( Las Vegas-Review Journal , Jan. 31, 2023)

“Las Vegas-based startup Roots Homes wants to help millennials and Gen Z purchase a home by offering more flexibility than the years it takes to save money toward a down payment — using a method known as fractional homeownership. Its first customer moved into a home in November, and the company said its 10th client is scheduled to move into a home this week. And last month, the company announced it raised $2.2 million in pre-seed funding to help fuel its growth.”

Pathway Homes to Spend $750 Million in Rent-To-Own Venture ( National Mortgage News , Feb. 3, 2022)

“The company’s rent-to-own options include HomeStart, which allows renters to move in after providing only a security deposit with an option to buy. Its Savings Match plan lets renters build toward a down payment, with Pathway Homes providing a fixed return and matching contribution over time. A third option to be available in the second quarter this year, Equity Builder, allows customers to buy half of their home with a 5% down payment while renting the remaining half.”

Withco Emerges from Stealth With $30 Million to Help Small Businesses Own Their Real Estate ( Forbes , Feb. 1, 2022)

Withco, a real estate start-up founded by 31-year-old Kevin Song in 2019, helps small business owners own their stores via a lease-to-own method. Withcho actually purchases the properties that business owners are renting from other landlords and often developers, then places them on a “equity-building, lease-to-own” plan. This often allows the next generation of small “mom and pop” shops to take over.

Tax Implications

Tax Information for Renting with the Option to Buy ( SF Gate )

“The Internal Revenue Service recognizes two major classes of deduction for your home. As long as you itemize your deductions on Schedule A, you can write off your mortgage interest and your property taxes. However, lease payments aren't deductible, even if you have an option to buy the property. You may, however, be able to claim a renter's credit if your state offers one.”

Does a Rent-to-Own Option Have Tax Advantages? ( The Nest )

“The renter doesn't get the usual tax breaks associated with home ownership: He can't deduct mortgage interest or claim any of the other tax breaks he'd get as a homeowner. Depending on your income and the state in which you live, however, you may be eligible for a renter's tax deduction. For example, in Massachusetts, renters can deduct up to $3,000. The owner of the rent-to-own arrangement, on the other hand, can deduct rental expenses -- repairs, maintenance, mortgage interest, travel to the house -- from the rental income the house brings in.”

Lease Option or Installment Sale? Determine the “Economic Realty” of Your Lease-Option Transaction or the IRS Will ( Commercial Real Estate Institute )

There are many tax considerations both the owner and the renter need to make during a lease option situation – “If the IRS characterizes the lease option as an installment sale for income tax purposes, the ownership of the property is assumed to have been transferred at the time the tenant gave the landlord the option payment and the lease commenced. This timing alters the tax consequences considerably for both the tenant and the landlord.”

Government Publications & Programs

Lease/Purchase Program for State Agencies ( Washington State Treasurer’s Office )

Lease Arrangements ( United States Office of Energy Efficiency and Renewable Energy )

Leases with Purchase Options are Infrequently Used but May Provide Benefits ( United States Government Accountability Office )

eBooks & Other Resources

The following eBooks and digital audiobooks are available to NAR members:

eBooks.realtor.org

Smart Guide to Real Estate: Step by Step Rent to Own (eBook)

Investing in Rent-to-Own Property (eBook)

Investing in Real Estate With Lease Options and “Subject to” Deals (eBook)

Books, Videos, Research Reports & More

As a member benefit, the following resources and more are available for loan through the NAR Library. Items will be mailed directly to you or made available for pickup at the REALTOR® Building in Chicago.

Who Says You Can’t Buy a Home! HG 2040.5 R25w (2006)

Have an idea for a real estate topic? Send us your suggestions .

The inclusion of links on this page does not imply endorsement by the National Association of REALTORS®. NAR makes no representations about whether the content of any external sites which may be linked in this page complies with state or federal laws or regulations or with applicable NAR policies. These links are provided for your convenience only and you rely on them at your own risk.

iPropertyManagement.com

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  • Purchase Agreement

Real Estate Purchase Agreement

Last Updated: January 3, 2024 by Phil Ahn

Purchase Agreement Contract Template_1 on iPropertyManagement.com

Examine the different processes of a real estate purchase agreement, including signing and closing the agreement, terminating the agreement, and particular provisions within the agreement.

Real Estate Purchase Agreements by State

What is a real estate purchase agreement.

A real estate purchase agreement is a binding agreement where a seller and a buyer agree and commit to the terms of the sale of real property. The contract includes:

  • The purchase price
  • Contingency clauses
  • Earnest money deposits
  • Closing date

A real estate purchase document is also known as a:

  • Purchase and Sale Agreement
  • Residential Real Estate Contract
  • Home Sale Contract
  • Real Estate Sales Contract

See Also: Land Purchase Agreement (PDF) and Commercial Real Estate Purchase Agreement (PDF) .

Completing a Real Estate Purchase Agreement

The process for agreeing to a real estate purchase include the following:

  • Preparing the purchase agreement
  • Negotiating the purchase agreement
  • Signing the purchase agreement

Preparing the Purchase Agreement

Real estate agents who are licensed to practice law or specialized real estate attorneys may prepare a purchase agreement.

If the sale of the property is by the owner, the buyer’s agent could prepare the paperwork as a transactional agent or “dual agent”.

While certain states allow dual agency, the following states do not :

Negotiating the Purchase Agreement

There are some points in a purchase agreement that are left open to allow both the seller and buyer agree to  parties to work out their own terms. These include:

  • Closing costs
  • Fees such as escrow and insurance
  • Sales price
  • Listing commission
  • Earnest money
  • Time to obtain a loan
  • Time to obtain an appraisal

The agent(s) will help both the seller and buyer agree to the terms of the sale, allowing the purchase of the residential property.

Signing the Purchase Agreement

A purchase agreement is a legally binding document that is signed by the seller and buyer. Each state has its own requirements when it comes to signing a real estate purchase agreement.

Typically, while a purchase agreement does not need to be notarized or signed by a witness, other real estate documents such as deeds, mortgages or any affidavits will need one.

If an agreement to purchase real estate is not written or signed by both the seller and buyer, it will not be enforceable.

Terminating a Real Estate Purchase Agreement

Terminating a real estate purchase agreement varies from state to state. As a real estate purchase agreement is a legally binding document, it might be difficult for a seller or buyer to terminate it without a penalty, especially if there is no termination clause.

The purchase agreement is made to outline all conditions and contingencies which the seller and buyer can terminate the agreement. If either party decides to terminate the agreement for a reason that is not listed as a condition or contingency on the agreement, they can face consequences such as forfeiting the earnest money deposit, lawsuits and other financial penalties.

Seller’s Termination

A seller may legally back out of the purchase agreement if a:

  • Contingency clause exists permitting early termination
  • Kick-out clause exists allowing the seller to accept offers if a better offer comes along
  • Buyer does not meet obligations (i.e., failure to secure a mortgage, failure to provide a deposit)
  • Buyer commits fraud
  • Seller and buyer mutually agree to terminate the agreement

If a seller improperly terminates the purchase agreement, they may face legal consequences from both the buyer and their listing agent. The listing agent might bring forth a lawsuit for marketing expenses, survey fees, legal fees or even their commission.

Buyer’s Termination

A buyer may legally back out of the purchase agreement if:

  • Major defects are found or there is a failed inspection
  • Agreed upon repairs were not completed by the seller
  • Undisclosed easements
  • The home is uninsurable due to major damages or issues to the property
  • The seller committed fraud
  • The seller and buyer mutually agree to terminate the agreement

If a buyer improperly terminates the purchase agreement, they may face legal consequences from both the seller and their listing agent. The seller may bring forth a lawsuit for a breach of contract.

Elements of a Real Estate Purchase Agreement

Each real estate purchase agreement is individually constructed to reflect the specific requirements of the sale. However, real estate contracts also have some common elements such as:

The purchase agreement should include the offered price accepted by the seller as well as the means by which it will be furnished. Common methods include:

  • Paying in full with cash
  • A cash down payment and a new mortgage
  • Another arrangement involving an already existing mortgage.

This information may be detailed in the purchase agreement or a financing addendum may be included to clearly outline the buyer’s down payment and lending situation.

Contingency Clauses

A contingency clause defines or outlines certain conditions or actions that a real estate purchase agreement must meet to become a legally binding document.

Common contingency clause examples include:

  • Appraisal Contingency . An appraisal provides protection for the buyer and is used to ensure that a property is valued at a proper specific dollar amount.
  • Title Contingency . A buyer may review the home’s title for any problems or any conflicting claims of ownership of the property.
  • Financing Contingency . A purchase agreement may not move forward until predetermined financial criteria are met.
  • Inspection Contingency . The buyer can have the home inspected by a professional inspector. The inspector will evaluate the property prior to closing and provides additional protection to the buyer who can cancel the agreement or ask for certain repairs to be completed before purchasing the home.
  • Home Insurance Contingency . The seller can request for a buyer to purchase a home insurance policy.

Each contingency has a specific deadline and if it’s not met by the deadline the agreement can be cancelled by the parties. If all the conditions are met, the contract is legally binding, so if a party decides to back out of the agreement they may be in breach of a contract and could face financial penalties or legal repercussions.

Earnest Money Deposits

Earnest money deposits (EMD) are a good faith deposit, which the buyer pays to show the buyer’s intent purchasing the seller’s property. Generally, the EMD is between 1-3% of the sales price, but it depends on a variety of factors (i.e., the current market, the seller’s requirements, any limitation the state imposes, etc.). The earnest money deposit is usually due within 3 days upon the agreement of the purchase agreement.

Earnest money deposits are usually paid via cashier’s checks or wire transfers and can be paid in phases or all at once. Once payment is made and the funds have been received, the Seller’s agent should provide the Buyer with an EMD receipt. In most cases, an EMD is refundable or has a cancellation fee.

Closing Date

The date of the   sale’s closing   should be included in the purchase agreement as well as the stipulation that any changes in closing must be agreed to in writing. Possession of the property typically transfers to the buyer upon the listed closing date and time. More importantly, the closing date marks the conveyance of the property’s title from the seller to the buyer. This conveyance may eventually be recorded in a bill of sale.

After signing the purchase agreement, the property is considered to be under contract. While under contract, there are multiple things a seller and buyer need to completed before closing. These include the:

  • Buyer entering escrow and providing the initial deposit
  • Seller and buyer performing a title search through a title company
  • Buyer or seller completing a home inspection to ensure all repairs are completed
  • Buyer purchasing homeowner’s insurance and providing proof of it
  • Buyer locking in the interest rate
  • Seller and buyer addressing the remaining contingencies
  • Title company sending disclosures and outlining closing costs and it will outline any closing costs.

After the mortgage and other supporting documents are signed and the title company has received the mortgage company’s funds, the property is considered transferred to the buyer.

Additional Addendums & Disclosures

Each state has their own disclosure requirements. For instance, in New York, there is a Property Condition Disclosure Act that states that if there is a problem with the property it must be disclosed to the buyer in a disclosure statement, unless the seller pays a $500 credit to the buyer at the closing process. N.Y. Real Prop. Law §§ 460-467 Below are common examples of real estate addendums and disclosures:

  • Purchase Agreement Termination Letter . This letter indicates that both parties are not obligated under the purchase agreement once it’s terminated.
  • Third Party Financing . This addendum outlines the terms of a loan and makes the contract of the property contingent upon the loan being approved by the lender.
  • Inspection Contingency . The buyer can use this addendum to determine if there are any major defects with the property. If there are any issues with the home, the seller and buyer can negotiate to fix/credit the issue or the buyer can back out of the contract.
  • Closing Date Extension . This addendum is used when both parties agree to extend the closing date.
  • Release of Earnest Money . A form which both parties sign for the Buyer to release the earnest money deposit to the Seller.
  • Earnest Holdback Agreement . This addendum outlines any rules for money that are pending to be release or being held back by the title or escrow company until the seller completes all tasks, responsibilities, and duties before the closing process occurs. During this time, interest can be earned while being held in an escrow account, and interest shall be paid to the Buyer.
  • Seller Financing . This addendum is used when the seller finances the sale and the sale price is payable over a period of time (instead of the closing).
  • Short Sale . This addendum is used when a seller owes more money than what the property is worth.
  • Property Disclosure Statement . Required in most states, the seller shall disclose any issues or defects on the property.
  • Lead-Based Paint Disclosure . According to federal law, every state must disclose a lead-based paint hazard if the home was built before 1978.

Caveat Emptor (“Buyer Beware”)

Caveat Emptor is a Latin phrase that means “let the buyer beware.” In a real estate transaction, a buyer must accept the property “as is.”

The following states allow caveat emptor sales:

  • North Dakota

In states where caveat emptor applies, a buyer would be unable to rescind an offer or sue for damages for relying on a seller’s representations. It is the buyer’s responsibility to conduct investigation and find any defects.

How to Write a Real Estate Purchase Agreement

To get started, download the Real Estate Purchase Agreement Template at the top of the page. This file can be viewed/opened as a PDF or as a Word document. Below is a step-by-step guideline on how to fill out a real estate purchase agreement.

I. THE PARTIES, THE AGREEMENT AND THE PROPERTY

1. Add the date that the purchase agreement was entered into.

2. Provide the Seller’s full name and address.

3. Provide the Buyer’s full name and address.

lease purchase agreement house

4. Insert the exact property address of the residential property that is being sold to the Buyer.

lease purchase agreement house

6. Insert a description and all items that will be included in the sale, including all fixtures that are embedded in the land or that are attached to the property that cannot be removed without damage.

7. Provide any fixtures and items that are excluded from the sale and will be taken by the Seller.

8. If there are personal property items that the Seller is leaving behind (that is not embedded to the land) list the items here.

lease purchase agreement house

9. Insert the dollar amount of the purchase price the Buyer must pay for the residential property.

10. If the Buyer is paying for the property via an “All Cash Offer”, check this box. The date and time of when the Buyer should provide the Seller’s third-party of documentation to verify sufficient funds shall be written here. If the verification of funds are unacceptable by the Seller, the Seller must provide a receipt. Insert the amount of business days a Seller must provide notice to the Buyer that the funds aren’t acceptable.

11.If the Buyer is purchasing the property through “Bank Financing”, check this box. Determine if the financing will be through a “Conventional Loan”, “FHA Loan”, “VA Loan”, or if there is “Other” financing write the description in the space provided.

lease purchase agreement house

12. Insert the date of which the Buyer will provide the Seller a letter from a credible financial institution to verify the Buyer’s credit report, source of down payment, acceptable income and availability of funds to close the real estate transaction.

13. Identify if the loan is or isn’t contingent on the lease, sale or recording of another property by checking the box marked “is” or “is not”.

14. Insert the due date of when the letter from a credible financial institution must be provided to the Seller.

15. If the letter is not provided by the Buyer, insert the amount of days from the letter’s due date that the Seller must provide a written notice to terminate the purchase agreement.

lease purchase agreement house

16. If the seller is providing financing to the Buyer, check the box marked “Seller Financing”.

17. Insert the loan amount in dollars.

18. Insert the down payment amount in dollars.

19. Insert the interest rate (per annum).

20. Insert the loan term period and check if the term is for “months” or “years”.

lease purchase agreement house

21. Insert the date of which the requested documentation is due.

22. Insert the date of which the Seller must approve the Buyer’s documentation.

23. Insert the amount of business days that a refund must be made in the case that the Buyer fails to obtain the Seller’s approval and the purchase agreement may be terminated.

lease purchase agreement house

24. Provide the address of the Buyer’s property that must be sold and closed for the Buyer to purchase the new real estate.

lease purchase agreement house

25. Write the dollar amount of the earnest money deposit that the Buyer agrees to pay.

26. Insert the date and time when the earnest money deposit is due. Check the box “AM” or “PM” if the payment is due in the morning or evening.

27. If state requires the earnest money deposit to be placed in a separate trust account or escrow account, check a box if it “is” required or if it “is not” required.

lease purchase agreement house

28. Check the box if there are no attached addendums or disclosures to the purchase or agreement or check the box if there are addendums or disclosures attached to the agreement. If there are addendums or disclosures, list the names in the blank spaces.

lease purchase agreement house

29. If there is any additional information that the Seller would like to add, it should be detailed in the blank space provided.

lease purchase agreement house

30. The inspection is contingent under the Buyer’s inspection of the property. The Buyer or Seller must agree upon a date about repairing the unsatisfactory conditions (if any). If the agreement can’t be made by the inserted date, the Buyer may have the right to terminate the purchase agreement and shall be refund any previous deposits.

lease purchase agreement house

31. The Buyer has an option to obtain a survey of the property before closing to ensure there are survey problems including defects, overlaps, boundary lines, etc. If there are survey problems the Buyer must notify the Seller of any issues within a certain amount of business days. Indicate how many days the Buyer must notify the Seller before the closing.

32. Indicate how many days the Seller has to remedy any survey problems before closing.

lease purchase agreement house

33. Once a title search report is received, indicate how many business days a Buyer has to notify the Seller of any problems that aren’t acceptable in the report.

34. Indicate how many business days the Seller has to remedy any defects found in the title search report.

lease purchase agreement house

35. Check the box marked “Buyer’s” expense or check the box marked “Seller’s expense” to determine who will purchase a title policy.

36. Check “Buyer” or “Seller” to determine who will select the title insurance company.

37. Indicate which state the title insurance company must be authorized to do business in.

38. If there is additional information to add, fill the blank lines here.

lease purchase agreement house

39. Mark this box if the Buyer’s performance is not contingent upon the appraisal of the property being equal to or greater than the purchase price.

40. Check this box if the Buyer’s performance is contingent upon the appraisal or the property being equal to or greater than the purchase price. Also indicate how many business days the Parties have to re-negotiate the purchase agreement.

lease purchase agreement house

41. Indicate how funds shall be provided to the Seller. Check either “cash”, “bank electronic transfer”, “cashier’s check”, “money order” “certified check” or “other”. If “other” indicate the type of payment.

42. Include the date and time of which the transaction shall be closed. Check the box “AM” or “PM” if the transaction shall be closed in the morning or evening.

lease purchase agreement house

43. Mark “Buyer”, “Seller”, or “Both Parties” to indicate who will pay for the closing costs.

44. Check “Seller Closing Costs” or “Buyer Closing Costs” and indicate if the party should pay “Half of Any Escrow or Closing Fees”, “All Escrow or Closing Fees” or “Other”. If “Other” is chosen, list how the closing costs will be paid.

lease purchase agreement house

46. If applicable, add any additional information in the blank line.

lease purchase agreement house

47. If the agreement is terminated, the Buyer shall be refunded. Indicate how many business days the Seller has to refund the money.

lease purchase agreement house

48. Add the date the Seller must deliver the property to the Buyer.

lease purchase agreement house

49. Insert the State that the agreement shall be governed by law.

lease purchase agreement house

50. Add the address of the Seller where notices or other forms of communication can be delivered.

51. Add the address of the Buyer where notices or other forms of communication can be delivered.

lease purchase agreement house

52. Indicate a due date of the date and time the Seller must sign the agreement and give a copy to the Buyer or the agreement shall be revoked. Check the box “AM” or “PM”.

lease purchase agreement house

53. Add any additional terms and conditions in the blank lines, if applicable.

lease purchase agreement house

54. Add the Seller’s signature, printed name and date of execution.

55. Add the Buyer’s signature, printed name and date of execution.

56. Add the Agents’ signatures, printed names and dates of execution.

lease purchase agreement house

Frequently Asked Questions

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How to Structure a Lease Purchase Agreement

How to Structure a Lease Purchase Agreement

26 Oct How to Structure a Lease Purchase Agreement

How to Structure a Lease Purchase Agreement

Lease purchases are the real estate investor’s bread and butter. They’re common enough that people usually understand what they are, and most homeowners are open to a lease purchase agreement. Especially when a house has been on the market for a while or the owner needs to get out of their home quickly. Learning how to structure a lease purchase agreement is key in entering real estate investment. A lease purchase agreement is usually also a good deal for the investor. Our company makes $75,000 on average with lease purchases. Because lease purchases are a great way to invest your money, we’re going to show you exactly how to structure a lease purchase agreement . Keep reading to learn!  

The Structure

The property whose structure we’re going to talk about today was on the market for about a year and a half before we came in with an offer. The owner continued to work with a real estate agent when we made our offer, which isn’t something we see every day in our company, but we said okay.

It was new territory for us, working with an agent on a lease purchase, and the closing took another six months. So, before we get into the breakdown, we would like to remind everyone that sometimes real estate deals can take a long time—sometimes they will be frustrating, but don’t get discouraged.

While this deal sat, we made adjustments to the monthly payments, and we even started looking for people who might want to purchase the home from us once we got our deal with the seller finalized.

After the six-month wait, we finally purchased the home for $319,000 on a 36-month term with a monthly payment of $1,974.99, including principal, interest, taxes, and insurance.

The couple we met, who were looking to purchase the home, bought it for $344,900 on a 30-month term. Our buyers were actually looking for a 24-month period because that’s how long it would take them to get qualified for a loan, but to give ourselves a buffer in case they started to default, we contracted them for 30 months. These extra six months would provide us with plenty of time to find a new buyer if we needed to.

Our lease purchase agreement with these buyers was set at $1,600 a month plus taxes, which were roughly four hundred a month for a total of $2,000 a month. With our monthly payments at $1974.99, we had about $25 to pocket every month.

The buyers came in with $16,000 down, which accounted for our first payday, with $9,000 going towards the purchase price.

Let’s break down all the numbers now.

We purchased the home for $319,000 and sold it for $344,000. That’s $25,000, but you have to subtract the $16,000 we’ve already taken in, so that’s $9,000 left from the premium plus the principal of $476 a month for 36 months, which is $17,136. In total ($16,000 + 9,000 + 900 +17,136), our payday was $43,036 on this one deal. While that’s below our average, that’s not a bad return on investment!

There you have it! This is how to structure a lease purchase agreement . If you would like to see the whole breakdown of this lease purchase with an in-depth explanation, check out the full video .  

What to Keep in Mind in Learning How to Structure a Lease Purchase Agreement

When structuring a lease purchase agreement, there are several things to keep in mind.

  •     Every state has different laws
  •     This is an investment
  •     Sellers have rights too
  •     There are several ways a lease purchase can work for you

Why do you need to keep these all in mind? Well, if you’re planning on investing in real estate for the long-term, you may decide to invest in multiple cities. This can be beneficial to your long-term wealth, but you can’t assume that each state has the same laws, so not every deal will be able to be structured the same way.

You will also need to keep in mind that each transaction is an investment. This means that as long as you’re making money—even if you’re not making as much as your last investment—you’re still doing well. It’s easy to get bogged down with the numbers and obsessed with making more money with each deal. But sometimes it’s enough to just walk away with extra money in your pocket.

As an investor, your personal well-being is going to be at the forefront of your mind—as it should! But, when negotiating deals, it’s important to remember that sellers have rights, too. Sometimes your negotiations may be frustrating, but sellers are well within their rights to request certain things, and state laws are sometimes going to be on their side.

Finally, the most important thing to keep in mind when investing is that there are many ways to structure your investment. You can create several different contracts for lease purchases. You can even experiment and see what kind of lease purchase structure works best for you!

If you're interested in learning other things like how to structure a lease purchase agreement , consider visiting our blog for all sorts of great real estate investing information!

Don’t forget! Get your free copy of our Real Estate Investor’s Blueprint . Just fill out the form to the right and we’ll email you our step-by-step guide to getting into investing and owning more homes without using your cash or credit.

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Sources: Cleveland Browns Owners Reach Agreement to Purchase 176 Acres in Brook Park

This article was published through an exclusive partnership with  NEO-trans.blog .

Update: The Cleveland Browns have responded to this report with the following. "We appreciate the collaborative process with the City of Cleveland and the leadership of Mayor Bibb in analyzing the landbridge and renovating the current stadium. At the same time, as part of our comprehensive planning efforts, we are also studying other potential stadium options in Northeast Ohio at various additional sites."  Read the full statement. 

The owners of the Cleveland Browns football team have reportedly reached a purchase agreement to acquire a large piece of land in the Cleveland suburb of Brook Park, leading to speculation that the Browns could leave the city of Cleveland for the second time in its 78-year history.

According to three sources who spoke to the breaking news real estate blog NEOtrans (North East Ohio transformation) on the condition of anonymity, the Haslam Sports Group has a contract to buy a 176-acre parcel that's nine miles southwest of Downtown Cleveland. It is about 1,000 feet from Cleveland Hopkins International Airport, located on the other side of Ohio Route 237 and the Norfolk Southern railroad tracks.

It remains to be seen what is the purpose of the reported Brook Park purchase agreement. It may be an attempt by the Haslam Sports Group to build a football stadium in Cleveland's suburbs. It could also be an insurance policy by the Haslams in case talks with City of Cleveland officials fail to produce a deal very soon for the renovation of the city-owned Cleveland Browns Stadium on Downtown's lakefront. The Browns' lease at the stadium expires after the 2028 football season.

Forward Innovation Center West from SR237 Aug 2021

The sources did not say if the property is for a new stadium, but it is big enough that it certainly meets the criteria for one. That criteria is a level, 100-plus-acre site with good transportation access. This site exceeds those requirements as it is within walking distance to the airport, accessible to Route 237, Interstates 71 and 480 plus the Greater Cleveland Regional Transit Authority's Red Line rail rapid transit.

Formerly the site of two Ford Motor Co. plants, and next to a third Ford plant that remains active, the nearly 210-acre property is being redeveloped by a mostly local consortium as the Forward Innovation Center-West , 18300 Snow Rd. A 33-acre parcel was carved out for the first tenant of the business park — a roughly 370,000-square-foot Amazon distribution center that opened about one year ago.

Developing the Forward Innovation Center-West is a partnership of Weston, Inc. of Warrensville Heights, the DiGeronimo Cos. of Independence and Scannell Properties of Indianapolis. They created a joint venture called DROF BP I LLC (spells “Ford” backward and “BP” referring to Brook Park), which purchased the land in April 2021 for $31.5 million, according to county records.

In a NEOtrans interview, a real estate insider speculated last summer that the Brook Park site would be among several considered by the Browns if negotiations with the City of Cleveland failed to produce a cost-sharing deal promptly for a nearly $1 billion renovation of the 1999-built, 67,431-seat stadium.

"It is my understanding that we continue to have positive and productive talks with HSG/Browns," says City of Cleveland Press Secretary Marie Zickefoose, "That's all I am aware of."

A City of Cleveland source says that it's unlikely the Haslams would secure a purchase agreement merely to motivate Cleveland officials to move faster or to pursue a better deal for the Haslams. The reason is that city officials don't know about the Brook Park agreement. Leverage works only if the target is made aware of it.

"No one is scrambling" to respond to any purchase agreement, the source says. He assured NEOtrans that city officials want to keep the Browns in Cleveland. Losing the team again, even if to a suburb, would be an emotional issue for Cleveland residents and a loss of prestige for the city, regardless of any positive or negative fiscal impact on the city.

Interestingly, 12 of 32 NFL teams already play their home games in suburban municipalities. That number would grow to 13 if the Chicago Bears follow through in possibly moving from downtown to Arlington Heights. Several other teams play within the city limits of their metro area’s “mother city” but not downtown, such as the Tampa Bay Buccaneers, Philadelphia Eagles and Green Bay Packers.

NEOtrans sent emails seeking confirmation and comment to Cleveland Browns Senior Vice President of Communications Peter John-Baptiste, Brook Park Mayor Edward Orcutt and Weston's President of Acquisitions & Development T.J. Asher. None have responded to the e-mails to dispute or confirm the information before publication of this article. NEOtrans' tracking program shows that someone had opened each of those e-mails.

City, county and state officials have been engaged in negotiations with the Haslam Sports Group led by the husband-and-wife team of Jimmy and Dee Haslam. The clock is ticking on the team's 30-year lease with the city for use of the 25-year-old Cleveland Browns Stadium on the lakefront.

With the Browns' lease due to expire after the 2028 football season, funding procurement for a new or renovated stadium and design work would have to begin soon. But that work would need to start sooner if the Browns have to build a new stadium.

Construction of a new stadium could take about three or four years while renovations might need two off seasons — after the 2027 and 2028 seasons. Typically, it can take up to a year for a purchase agreement to close and result in a deed transfer. It is not known when the agreement was signed. And not all land contracts result in a purchase.

In July 2023 and again in September, NEOtrans reported stadium negotiations were faltering . NEOtrans shared insights from two sources, one a City of Cleveland source and the other a Browns source, who says a deal had to be done in “a matter of months, certainly less than a year” to keep the Browns in Cleveland.

"The only thing Dee and I would say for sure is we’re not leaving Northeast Ohio, that's for sure," Jimmy Haslam said in July 2023 . "Our preference is for us to be on the lakefront. But we’ve got to see how things play out. It will be fluid. There will be bumps in the road and it may be different in three months than it is now.”

Lakefront Vision of the City

But Cleveland city officials are under pressure from constituents to invest more in public safety, infrastructure, housing and other neighborhood quality-of-life issues. If a football stadium is to be renovated, many residents say the city should share that cost burden with more of Northeast Ohio’s political jurisdictions. A recent Cleveland Scene article noted that only 15% of Browns game attendees reside in the city of Cleveland and 31% live in Cuyahoga County.

In November 1995, a county-wide vote was held to extend by 10 years a "sin tax" on alcohol and tobacco products to pay for stadium renovations supported by then-Browns owner Art Modell. Instead, just days before that vote, he announced he would take the Cleveland football franchise to Baltimore after the 1995 season. The sin tax extension passed with 70 percent of voters in support. Lawsuits from the city and the fans forced the Browns’ name, colors and history to remain here.

The sin tax, generating about $14 million per year, was used by the county and city to build the new Browns a new lakefront stadium that opened in 1999. That project also tapped parking tax revenues, state dollars and a funding contribution from the NFL. Those financial resources may be on the table again but another sin tax extension is more complicated.

With the sin tax due to expire, 56% of Cuyahoga County voters in 2014 extended the tax another 20 years to help the Cavs basketball and Guardians baseball teams fund their facilities’ improvements. If the Browns want to tap the sin tax again, it would have to be extended by voters before it expires in 2035. But the Haslams could provide a significant, private-sector contribution to any stadium project.

The Haslam family, including Jimmy and Dee Haslam, sold to Warren Buffett's Berkshire Hathaway an 80% stake in Pilot Travel Centers, the largest U.S. truck stop chain, for $11 billion in two separate deals, in 2017 and 2023. The sale of the remaining 20 percent stake was cleared when a lawsuit was settled last month regarding the valuation of the remaining stake which could be in the $2 billion to $3 billion range. Terms of the settlement weren't disclosed.

A new, open-air, 60,000- to 70,000-seat stadium could cost up to $2 billion to build. Stadiums with a lid cost even more — $2.5 billion for a fixed-roof venue, or at least $3.5 billion for a stadium with a retractable roof.

NFL owners are extremely competitive with each other, not only with the teams they put in their stadiums but among the stadiums themselves. The backers of each new stadium try to outdo the ones that came before in terms of design, technology, amenities for fan experiences and for attracting players.

Owners also are increasingly providing "ballpark villages" around their teams' stadiums as well as their practice facilities, offering hotels, luxury apartments, shopping, wellness centers, digital gaming and other interactive, fan-friendly sports venues.

The stadium situation does not affect the proposed expansion and development of the Browns' practice facilities in Berea, called the CrossCountry Mortgage Campus. It is less than two miles from the Forward Innovation Center-West site in Brook Park. The area for the expanded practice facilities and potential supportive mixed-use developments grew to 34 acres last fall and could grow further.

The Brook Park site's proximity to Cleveland's airport, if developed with a football stadium, could provide the Browns with an amenity that no other NFL team could match. Constructing a new long-term airport parking garage with a 1,000-foot-long enclosed walkway extending over Route 237 and the railroad could connect the city of Cleveland-owned airport with a new football stadium's facilities.

In other words, someone could walk from their airplane seat to their stadium seat without going outside. This year, the City of Cleveland is about to begin design work for Cleveland Hopkins International Airport's $3 billion Terminal Modernization Development Program that could include new roadways, walkways, parking and rental car areas, better transit access, hotels and, of course, terminal facilities.

Previously, the Forward Innovation Center-West was home to Ford Motor Co.'s 1.7-million-square-foot Ford Engine Plant No. 2 and its neighboring Cleveland Casting Plant. The casting plant was demolished in 2013 and Engine Plant No. 2 was razed in 2021. Both are just south of a remaining Ford factory, Engine Plant No. 1. Forward Innovation Center-East , another former Ford auto plant but in the southeast suburb of Walton Hills, is also being marketed by the same partnership.

In Downtown Cleveland, Mayor Justin Bibb's administration has been pursuing  redevelopment of the Lake Erie waterfront with recreational facilities, housing and shops. It would be connected to the central business district and the riverfront via a pedestrian accessway called the North Coast Connector over the Shoreway highway.

The Shoreway is proposed to be downgraded from a highway into a boulevard. The connector would cross the roadway and the lakefront railroad and light-rail transit tracks. It could link up with a multimodal transportation center served by Greater Cleveland Regional Transit Authority light rail trains and buses plus Amtrak trains. Final designs for the "Shore to Core to Shore" vision are to be released early this year.

Conceptual lakefront plans released in October showed a renovated football stadium but offered little detail about it. On Feb. 1, city and county officials were in Washington, D.C., to lobby the Departments of Commerce and Transportation for hundreds of millions of federal dollars for lakefront infrastructure investments. County Executive Chris Ronayne was among those on the trip.

"The City of Cleveland requested that Cuyahoga County join them in Washington, D.C., to make a presentation on the Shore to Core to Shore Vision, which the county supports," says county Director of Communications Kelly Woodard. She says county officials are unaware of Haslam's reported Brook Park land purchase agreement.

The state of Ohio's draft capital budget also has $20 million in it for the Shore to Core to Shore plan, including the North Coast Connector. When addressing the difficulties in the stadium negotiations with the city last year, Dee Haslam says the lakefront improvements are needed with or without the football stadium — seemingly setting the stage for what appears to be happening now.

"Outside of us (the Haslam Sports Group/Browns), the lakefront in Cleveland has to be developed," she says. "You need a vibrant city. That’s a really important part of who Cleveland should be. We think the connection bridge has to happen regardless of what happens with our stadium."

Dick Clough, executive board chairman of the lakefront advocacy group Green Ribbon Coalition, says the lakefront would be better off with year-round uses like recreation, residences, hotels and shops rather than the seldom-used football stadium dominating it.

"I never liked the stadium on the lakefront," Clough says. "It ruins the scale of everything else down there. It's just a huge rectangular thing that dwarfs everything else nearby including the Rock and Roll Hall of Fame and the Great Lakes Science Center. If you're going to lose a team to the 'burbs, the Browns would be the one to lose. It's only 10 games (per year) and maybe a concert or two."

For more updates about Cleveland, sign up for our  Cleveland Magazine Daily  newsletter, delivered to your inbox six times a week.

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9:30 AM EST

February 8, 2024

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lease purchase agreement house

Haslam Sports Group Has Options for Brook Park Site

Besides building an NFL stadium in Brook Park, another option is to use the possible purchase of that land as part of a land trade to put a new stadium closer to Downtown Cleveland. By Ken Prendergast, NEOTrans

lease purchase agreement house

Cleveland Browns, City of Cleveland Respond to Report of Land Purchase Agreement Outside of Cleveland

After a report that the team's ownership group has purchased land in Brook Park, the organization did not rule out keeping the stadium in Cleveland in a statement and called the stadium planning process "complex." By Cleveland Magazine Staff

lease purchase agreement house

Sources: 200 Public Square Building Sold to New York Firm

Downtown Cleveland's third-tallest skyscraper has been sold to a New York-based company that has more than its share of cheap or faded retail properties including many in Ohio. By Ken Prendergast, NEO Trans

lease purchase agreement house

Russia establishes special site to fabricate fuel for China’s CFR-600

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A special production site to fabricate fuel for China’s CFR-600 fast reactor under construction has been established at Russia’s Mashinostroitelny Zavod (MSZ - Machine-Building Plant) in Elektrostal (Moscow region), part of Rosatom’s TVEL Fuel Company. 

As part of the project, MSZ had upgraded existing facilities fo the production of fuel for fast reactors, TVEL said on 3 March. Unique equipment has been created and installed, and dummy CFR-600 fuel assemblies have already been manufactured for testing.

The new production site was set up to service an export contract between TVEL and the Chinese company CNLY (part of China National Nuclear Corporation - CNNC) for the supply of uranium fuel for CFR-600 reactors. Construction of the first CFR-600 unit started in Xiapu County, in China's Fujian province in late 2017 followed by the second unit in December 2020. The contract is for the start-up fuel load, as well as refuelling for the first seven years. The start of deliveries is scheduled for 2023.

“The Russian nuclear industry has a unique 40 years of experience in operating fast reactors, as well as in the production of fuel for such facilities,” said TVEL President Natalya Nikipelova. “The Fuel Division of Rosatom is fulfilling its obligations within the framework of Russian-Chinese cooperation in the development of fast reactor technologies. These are unique projects when foreign design fuel is produced in Russia. Since 2010, the first Chinese fast neutron reactor CEFR has been operating on fuel manufactured at the Machine-Building Plant, and for the supply of CFR-600 fuel, a team of specialists from MSZ and TVEL has successfully completed a complex high-tech project to modernise production,” she explained.

A special feature of the new section is its versatility: this equipment will be used to produce fuel intended for both the Chinese CFR-600 and CEFR reactors and the Russian BN-600 reactor of the Beloyarsk NPP. In the near future, the production of standard products for the BN-600 will begin.

The contract for the supply of fuel for the CFR-600 was signed in December 2018 as part of a governmental agreement between Russia and China on cooperation in the construction and operation of a demonstration fast neutron reactor in China. This is part of a wider comprehensive programme of cooperation in the nuclear energy sector over the coming decades. This includes serial construction of the latest Russian NPP power units with generation 3+ VVER-1200 reactors at two sites in China (Tianwan and Xudabao NPPs). A package of intergovernmental documents and framework contracts for these projects was signed in 2018 during a meeting between Russian President Vladimir Putin and Chinese President Xi Jinping.

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COMMENTS

  1. Lease Purchase Agreement: What To Know

    A lease purchase agreement in real estate is a rent-to-own contract between a tenant and a landlord for the former to purchase the property at a later point in time. The renter pays the seller an option fee at an agreed-upon purchase price, giving them exclusive rights to buy the property.

  2. Lease Purchase Agreement: Benefits for Buyers and Owners

    A lease purchase agreement—also known as a rent-to-own or lease-to-own agreement—lets someone rent a property for a specified period of time with the promise to purchase it at the end...

  3. Lease Purchase Explained: Everything You Need To Know (2023)

    Lease purchase agreements consist of two separate real estate contracts : a rental agreement and a contract for sale. The rental agreement includes provisions such as: Monthly rent and due dates Who is responsible for the maintenance of the property Deposit requirements Pet regulations The contract for sale, on the other hand, covers the following:

  4. Lease Purchase Agreement: All You Need to Know

    A lease purchase agreement is a contractual arrangement that combines a lease agreement 's components with a purchase agreement based on a specific set of rules. It helps all tenants lease a property for a specified period and allows them to purchase the property at a later date.

  5. Free Rent-to-Own Lease Agreement (w/Option to Purchase)

    A rent-to-own lease agreement is a standard lease with an added option for the tenant to purchase the property. This arrangement is common for homeowners seeking to collect rent on their home and possibly sell to the tenant at a pre-negotiated price. Financing is commonly provided by the owner if they have no mortgage on the property. By State

  6. The Basics of Lease Options and Purchase Sales

    A lease option works much the same way. The buyer (the property renter) pays the seller (the property owner) option money for the right to purchase the property later. Lease option money can be substantial. The buyer also agrees to lease the property from the seller for a predetermined rental amount during the term of the lease option agreement ...

  7. What is a Lease Purchase Agreement?

    A lease-purchase agreement is a lease-purchase contract that gives potential buyers the option to buy a contract rather than make a long-term commitment to buy the entire property per market value. A lease-purchase agreement is one of the types of the rental contract that makes it possible for folks who want to rent a real estate property.

  8. Guide To Lease Purchase

    A lease purchase agreement, also called a rent-to-own agreement, is a contract between a renter and a landlord. This agreement allows a renter to lease a property for a period of time before purchasing when the lease agreement expires. The renter typically pays an option fee for the right to buy the property later.

  9. Advantages of Using a Lease Purchase to Buy Property

    A lease purchase is a written agreement between a landlord and tenant, giving the tenant an option to purchase the property at some future point in time. The nature of this type of real estate transaction can vary a great deal, because virtually all the terms of a lease purchase are negotiable. For example, they may or may not include a set price.

  10. What Is a Lease Purchase Agreement?

    A lease purchase agreement is a specific type of rental contract that lets people who are renting a property from a landlord eventually become the owner Depending on your current financial and personal situation, a lease purchase agreement might help you eventually buy a home that would otherwise be out of reach

  11. What is a Lease Purchase Agreement?

    A Lease Purchase Agreement, often referred to as a rent-to-own agreement, is a contractual arrangement that allows a tenant to lease a property with the option to purchase it at a predetermined price at the end of the lease term. This arrangement combines elements of a traditional lease and a purchase contract, providing an alternative path to ...

  12. Lease Purchase Agreements In Real Estate: A Buyer's And Seller's Guide

    A lease purchase agreement in real estate is like a rent-to-own deal between a tenant and a landlord. Here's the deal: the tenant can buy the property later on. To secure this, the renter pays an upfront fee to the seller at an agreed price, locking in the right to purchase the property. They both settle on the future purchase price of the ...

  13. Lease-Option Purchases

    Quick Takeaways "A lease option is a contract in which a landlord and tenant agree that, at the end of a specified period, the renter can buy the property at a specified price. The tenant pays an up-front option fee and an additional amount each month that goes toward the eventual down payment."

  14. PDF Rent to Own Lease Purchase Agreement

    Landlord agrees to lease to Tenant, and Tenant agrees to lease from Landlord, the Premises for a term beginning on ____________ [and ending on ______________/and continuing month-to-month until either Landlord or Tenant terminate this Agreement by providing the other Party with proper written notice of termination] (the "Term").

  15. How Lease-Purchase Agreements Work

    A lease-purchase agreement has advantages and disadvantages for sellers and home buyers searching for their dream home.

  16. Real Estate Purchase Agreement Form [2024 ]

    A real estate purchase agreement is a binding agreement where a seller and a buyer agree and commit to the terms of the sale of real property. The contract includes: The purchase price Contingency clauses Earnest money deposits Closing date A real estate purchase document is also known as a: Purchase and Sale Agreement

  17. How to Structure a Lease Purchase Agreement

    Especially when a house has been on the market for a while or the owner needs to get out of their home quickly. Learning how to structure a lease purchase agreement is key in entering real estate investment. A lease purchase agreement is usually also a good deal for the investor. Our company makes $75,000 on average with lease purchases ...

  18. Lease purchase contract

    A Lease-Purchase Contract, also known as a lease purchase agreement or rent-to-own agreement, allows consumers to obtain durable goods [1] or rent-to-own real estate [2] without entering into a standard credit contract. [1] It is a shortened name for a lease with option to purchase contract.

  19. 9+ Lease Purchase Agreement

    8+ Month To Month Lease Templates. 4+ Property Lease Templates. 9+ Apartment Lease Agreement Templates - Word, PDF, Pages. Lease Template - 20+ Free Word, PDF Documents Download. 7+ House Lease Templates. 7+ Apartment Lease Templates. 18+ Printable Residential Lease Agreements. 112+ Sample Lease Templates.

  20. Sources: Cleveland Browns Owners Reach Agreement to Purchase 176 Acres

    Construction of a new stadium could take about three or four years while renovations might need two off seasons — after the 2027 and 2028 seasons. Typically, it can take up to a year for a purchase agreement to close and result in a deed transfer. It is not known when the agreement was signed. And not all land contracts result in a purchase.

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  22. Rabochaya ulitsa, 35А, Elektrostal

    Rabochaya ulitsa, 35А, Elektrostal, Moscow Region, 144001. Coordinates:. 55.775454, 38.472688

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    The new production site was set up to service an export contract between TVEL and the Chinese company CNLY (part of China National Nuclear Corporation - CNNC) for the supply of uranium fuel for CFR-600 reactors. Construction of the first CFR-600 unit started in Xiapu County, in China's Fujian province in late 2017 followed by the second unit in ...

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