Backing Out of Lease-Purchase Agreements: The Consequences
Lease-purchase agreements are not usually open-ended contracts. Typically, a lease-option agreement has the option to either purchase or choose not to move forward with the transaction. A lease-purchase agreement, however, usually does not. Depending on the actual terms of your contract, the consequences for failing to go through with the purchase will be different.
Breaking a Lease-Option Agreement
With a lease-option agreement, the seller and buyer set terms for the rental period and a hypothetical sale. The sale price may be set ahead or decided on later. The seller agrees to take the property off the market. In exchange, the buyer pays "option" money up front for exclusive rights to the property during the lease. This part of the process is the same for both a lease-option and a lease-purchase.
The key difference is what happens at the end of the contract. Since the sale is only hypothetical on a lease-option agreement, the buyer can walk away at the end of the sale. The buyer will lose the option money paid at the beginning of the contract. On most contracts, the buyer will also lose the additional cash that was paid on top of the rent each month toward a down payment. Other than losing this cash, though, the buyer can walk away clean at the end of a lease-option agreement he or she decides not to execute.
Breaking a Lease-Purchase Agreement
With a lease purchase agreement, a buyer agreed to the transaction from the beginning. Usually, a sale price was set up front. The buyer and seller may agree to a "fair market assessment" at the time of sale in some cases, but buyers typically desire a contract with an expressed sales price. The buyer places option money with the lender. During the lease period, the transaction is treated just like any other lease-to-own agreement. The buyer pays an agreed-upon rental fee plus additional money toward an eventual down payment.
When the lease period is over, the buyer must execute the sale. Failing to do so is breaking a legal contract. The seller can sue the buyer, and unless the contract is not valid, the seller will win the lawsuit. While the seller cannot coerce a buyer into purchasing a home, a judge has the option of ordering the transfer of a settlement or cash in the full amount owed in order to transfer the title.
A lease-purchase agreement has as much weight as a sale of a home. Once a home sale contract is finalized, neither party can back out, including the seller. If a seller were to try to back out of a lease-purchase agreement, he or she would have no authority to sell the property. At the date of execution of the contract, the ownership of the property transfers to the buyer. The seller has contracted to not offer the home for sale to any other party in the meantime or afterward. Therefore, any other contract would be void unless a judge determines the lease-purchase agreement was also void.