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How To Set up a Rent to Own Contract - Parkers Legacy

The sale of a home is usually done soon after an agreement is reached and the closing papers are signed.If you don’t have good credit but still want to purchase a home, you may be able to use a rent-to-own agreement.When you enter into this type of agreement, you agree to rent the home for a certain period of time before you have the right to purchase it.The rental provisions are included in this type of contract.Each piece can be drafted in a variety of ways so be sure to understand the consequences of your choices.

Step 1: Hire an attorney.

Legal duties that affect your rights are created when you enter into a contractual relationship with someone.You should always have an attorney help you through the entire contract process or review the completed contract.Real estate attorneys are the most knowledgeable about rent-to-own contracts so you should look for that specialty when conducting your search.If you know people who can give you referrals, you should ask them.If you trust the person making the referrals, they are a great way to find a competent attorney.You can use the state bar’s lawyer referral service if you can’t get help from friends or family.You can call the state bar in California and they will ask you questions about your legal issue.The names and contact information of multiple qualified attorneys will be given to you by the state bar after the conversation.

Step 2: Determine if you need a written contract.

Some agreements don’t warrant the use of a legally binding contract.The purpose of the contract is to protect the individuals entering into it and to provide legal remedies in the event of a violation.A contract is needed in rent-to-own agreements.The renter can purchase the home at the end of the rental period if they so choose.One of the reasons a contract is necessary is that this type of agreement can be very complex.The Statute of Frauds requires all contracts for real property to be in writing.Statutes of frauds are specific state statutes.It is intended to decrease the likelihood of fraudulent activity by requiring certain types of contracts to be written and signed.

Step 3: The basic requirements of contracts should be analyzed.

Legal contracts are created with an offer, acceptance, consideration, and mutuality.There is no contract without these four elements.It’s important to recognize these before you write a contract.An offer is a promise of something in the future.In a rent-to-own contract, the offer would be to rent the home with the option to purchase it.The other party accepts an offer.Signing the contract or performing under it is how this can be done.The things of value each party gives up are considered consideration.One party would give up possession and possibly ownership of their home in exchange for money from the other party.You and the other party agree to the basic terms of the agreement.

Step 4: Every party should be able to enter into the contract.

Individuals can’t legally enter into contracts.This includes people with mental incapacity.Contracts entered into with wrong people are either void or voidable.The law applicable to those facts will determine this determination.It can’t be enforced by either party if a contract is void.The contract was not entered into.One party can be bound by the terms of the contract if it is void.The minor can choose whether to honor or cancel it.If you have doubts about the other party’s ability to contract, don’t sign a contract.There are people under the age of 18.If a minor does enter into a contract, it will be considered void.The minor can either honor or cancel the contract.Individuals who don’t have the mental capacity to contract can void their contract.In most states, a person lacks mental capacity if they don’t understand the meaning of the contract.

Step 5: Preliminary discussions are a good place to take part.

Talk to the other party about their expectations before drafting the rent-to-own contract.This will allow you to understand which provisions can be left out.You don’t have to rewrite the contract if you have these discussions now.Discuss the terms of the rental agreement, the option to purchase fee, how the purchase will take place, and how disputes will be resolved.

Step 6: Start with the basics.

Every contract should start with a preamble.The title of the agreement, the date of execution and the parties involved need to be included in the preamble.You are free to include any additional identifying information you feel is necessary.Your preamble may say: “This Rent-To-Own Agreement is entered into as of the Effective Date between Ryan James andTrevor Benjamin.”The property address is where the issue is.

Step 7: It is possible to create recitals.

Recitals give a factual background to the agreement.They will usually explain why the agreement is being entered into.There should be no enforceable duties or obligations in this section.A series of ‘whereas’ sentences may be included in your recital.The Renter wants to rent the property at the address.Until you are comfortable with the background you laid out, you would continue with these statements.

Step 8: There is an agreement.

The exchange of promises must be clearly laid out near the top of the contract.It is important to explicitly state your promises up front, as the exchange of promises will be laid out further throughout the contract.You can either promise to provide an option to purchase your home or you can promise not to do that.This provision needs to include a certain language.”Now, therefore, in consideration of the promises and mutual covenants set forth here and for other good and valuable consideration, the parties hereto covenant and agree as follows.”

Step 9: The definitions section should be included.

You need to define the terms in your agreement.You and the other party may find yourself in a dispute if you don’t define these terms.You should discuss any terms you want to define with the other party.Follow your definition in the definitions section.Continue until you have defined all the important terms.

Step 10: The rental agreement should be drafted.

The rental provisions are the first body paragraphs of your rent-to-own contract.This type of agreement will allow you to create a tenancy before the contract becomes a purchase agreement.A description of your lease and its terms, which will stay in effect for a certain period of time or until the renter exercises the purchase option, will be included in this section.The terms of the lease should be included.This can be between one and three years.Information about the amount of rent to be paid and how that rent will be allocated to the purchase price should be included.Rent will be due in the amount of $1,200 per month, according to your contract.It is possible that 25% of your monthly rent will be credited to the purchase price you agreed on.If the lease term is three years, the buyer will earn $10,800 towards the purchase price of the home by paying rent.The rent may be slightly above fair market value because part of it will be going towards the purchase of the home.If you don’t want the rent to go towards the purchase price, you do not need to.Rent will usually be close to the fair market value in the area.

Step 11: It is possible to make an option to purchase.

The option to buy the home at some point in the future is provided by this provision.The purchaser will usually have to pay an option fee in exchange for this option.The option fee can be paid up-front or in the form of increased rent.The obligation to purchase the home is not given in some contracts.The potential buyer will have to buy the home at the end of the rental period.The renter may be required to purchase the home if the provision uses the words “lease purchase” without the word option.The renter will usually choose whether to purchase or not if the provision uses the word option.If the renter doesn’t purchase the home, the option will end.The owner of the option fee will get to keep it.

Step 12: The purchase price and purchase obligations should be stated.

The purchase price of the home will be determined by your contract.The purchase price can be decided before the contract is signed, and it will be included in the final contract.You and the other party can decide the purchase price after the lease ends.If the housing market is rising, you may want to lock in the price ahead of time.If you are the owner, you might want to wait and determine the price in the future.

Step 13: You should include party obligations.

There are certain duties that each party will have to fulfill.Information about how rent will be paid and allocated, who is responsible for making repairs, and who should inspect the house are included in a rent-to-own contract.The potential buyer will usually be responsible for maintaining the property and paying property taxes and insurance.Just like a normal rental agreement, you need to explain how rent will be paid, when it’s due, and how it can be delivered.If a portion of rent goes towards the purchase price, the renter will be required to keep the money separate in an account.There are no ambiguities if you lay out all of the requirements.Before the contract is signed, most people want an inspection of the home and an appraisal of its value.They want to make sure the purchase price of the home is fair so they make deductions if large repairs have to be made.

Step 14: A dispute resolution clause should be included.

Most agreements will be executed without problems, but there can be disagreements.If there is a dispute, you want to make sure you have a system in place to resolve it.You want to lay out a series of events that will lead to a dispute resolution process.Informal negotiations may be used to try and resolve minor disputes.If you can’t come to an agreement, your contract may state that you need to hire a mediator.Both parties need to agree to non-binding arbitration if mediation doesn’t work.You can state that a lawsuit can be brought if all else fails.

Step 15: Use general language.

Almost every contract has boilerplate provisions.The contract is usually governed by them.The choice of law provisions, which cover which state’s laws will govern the contract, and the Entire agreement clauses are examples of these provisions.The clause tells the parties how amendments can be made.

Step 16: Save the last page for signatures.

At the end of the contract, you need to leave room for you and the other party to sign.It should have blank lines for each party.Each party needs to read the entire agreement before signing it.

Step 17: The contract can be offered to the other party.

Send the contract to the other party once it’s complete.The other party will get back to you.Acceptance or rejection is what will happen when you get a response.In your offer, state if you want a response within a certain time period.The other party will have a reasonable amount of time to respond if you do not.If your offer is accepted, you have the option to withdraw it.Before they accept, make sure the revocation gets to the other party.An enforceable contract is created when your offer is accepted.

Step 18: Negotiating changes is necessary.

A counter-offer may be made if the other party rejects your offer.Change the contract terms as necessary.Negotiating with the other party is necessary to discuss the changes.If you promise to make changes in the other party’s favor, you can always ask for something.If the other party wants to change the rental period from three to five years, you might ask for a reduced monthly rent amount or more of your rent payment to go towards the purchase of the home.

Step 19: The document needs to be signed.

If you and the other party agree to all of the terms in the contract, you should sign it.The document can be signed electronically if you and the other party are not in the same room.It’s a good idea to keep a copy of the contract.You will need a contract in order to resolve a dispute.