Rent To Buy Contract – Is it Worth Considering?

Posted in: Deeds Issues, Legal


renttobuycontract

What is a Rent to Buy Contract?

Rent to Buy contracts are being mentioned a great deal on social media at the moment in Spain. So what is a Rent to Buy Contract? They are very common in Spanish law as a different manner of house purchase. There are 2 deals in one contract: a rental and a purchase option and both deals are connected. The person who is going to live in the property pays rent and a deposit (10% is a usual deposit). Normally a rental contract is for 1 to
3 years (although with mutual agreement they can be for a lesser period or for longer).

How Does It work?

All the money paid as rent is deducted from the purchase price. The buyer has the option to purchase the house within the period of the contract. Usually a deposit is paid up front. This deposit is also deducted from the final price. This would all be stipulated in a legal contract.

In these types of contracts the tenants normally pay all the services and taxes on the house (water, electricity, SUMA, community fees….). This is from the point that they start living in the house.

If the buyer exercises the option to purchase the house, the rental agreement becomes a purchase agreement. Exercising the purchase option means committing to pay the full price. However as we explained before in a Rent to Buy Contract, all the money paid as rent and the deposit are deducted from the final price.

What happens if the Renter/Buyer Pulls out?

In a Rent to Buy contract, if the buyer does not exercise the purchase option then they lose all the money paid as rent and deposit. They will have to abandon the property, unless they want to continue the rental agreement aspect.

Is the Contract Made Through a Notary?

No, you should have the contract prepared by an experienced solicitor such as ourselves, or at very least checked by one. If the solicitor has drawn up the agreement or is happy with it, then we do not need to go to the Notary until the end of the proceeding. (When the option to purchase is exercised), so no expenses must be paid until the end and then the solicitor will assist with the formalities in the normal way.

Advantages of these Rent to Buy Contracts

These contracts are a simple and effective method of purchasing a house, as many estate agents will tell you. When a delay is agreed – it is a very secure contract for buyer and seller. The tenant/buyer is in the house, and they know their money is safe because the owner couldn´t sell the house with them in it. And the owner/seller have money in advance and gets a rent and a commitment until the house is sold. Moreover, the owner could evict the tenant if the rent is not paid on time, keeping the money paid as the deposit, because both these contracts are connected.

These contracts are excellent, because you can add a lot more obligations and penalty clauses when drawing them up according to the circumstances. They also are ideal if there are problems with a house that may cause a delay to a sale but the seller wants a strong commitment. (We are aware that some estate agents are suggesting using them as an option for a commitment, as British buyers may need a military certificate now in some areas, causing delays to completion).

The only disadvantages of these contracts tend to occur when they are not drawn up properly, or say with “abusive clauses” that could not be exercised. As always with any type of serious agreement or contract they should be drawn up and /or checked by a professional Spanish lawyer. It is inexpensive and can save a good deal of money in the long run.

If we can help you with a Rent to Buy Contract or advise you or help with any aspect of conveyancing or buying or selling of property please contact us. We also welcome any queries from agents if we can help you.