Occasionally we answer questions regarding Leases with Options to purchase, also known as “lease-purchase” or “rent to own” transactions.
Normally the questions I receive are from buyers or realtors representing buyers who would like to purchase a home yet due to an extenuating circumstance they cannot move forward with the purchase. Sometimes in these cases, a seller will entertain a lease with option contract where they commit to sell the property to a buyer while holding an offer to sell open for a set period of time, the “option period."
During the option period, the seller cannot sell the property to another party. The arrangement does not necessarily obligate the purchaser to purchase the property. Instead, the purchaser pays an “option fee” to ensure they have the right to buy the property at a particular time in the future. Recently, I was helping a buyer who needed time to repair his credit to purchase a house located next to his aging parent’s home. The seller and buyer’s family had been lifelong friends, and the seller wanted to accommodate his neighbor while moving forward on the sale of his property. A lease with an option to purchase was a useful tool in this situation.
North Carolina General Statute Chapter 47G governs Option to Purchase Contracts executed with Lease Agreements. The leases that are covered under the statute are residential lease agreements that are combined or executed with an option contract. The option contract according to the statute is a “contract for the purchase of a single-family residential real property that includes or is combined with, or is executed in conjunction with, a covered lease agreement.”
Landlord tenant law in accordance with Chapter 42 of the General Statutes applies to the lease portion of the contract unless Chapter 47G states otherwise. The option portion of the contract typically provides that if the lessee (purchaser) fails to fulfill his/her responsibilities under the contract he/she will not be required to purchase the property. However, depending upon the terms of the contract, the purchaser may lose the option to exercise their right to purchase the house. The statute does require that the purchaser (lessee) have a right to cancel the contract and also, a right to cure a default.
In addition to the particulars that are required in the contract according to the statute, the statute states “the seller shall cause a copy of the option contract or memorandum of the option contract to be recorded in the office of the register of deeds in the county in which the property is located.” This recording must occur within five days of the option being signed and acknowledged by the parties. There are no approved preprinted forms to use in these types of transactions.
Seeking the advice of a licensed North Carolina attorney who is familiar with Chapter 42 and 47G of the General Statutes is important to ensure the complexities of the transaction and needs of the parties are adequately addressed.
Published by Wendy Hughes on March 15, 2017