Lease-to-own Options Can Cut Both Ways

Robert S. Griswold | Steven R. Kellman | Ted Smith
3-December-2000 Sunday

This column on issues confronting renters and landlords is written by Counselor of Real Estate and Certified Property Manager Robert Griswold, host of Real Estate Today! with Robert Griswold (10 a.m. Saturdays on AM1130 - KSDO radio, or on the Internet at www.retodayradio.com), and by attorneys Steven R. Kellman, director of the Tenants' Legal Center, and Ted Smith, principal in a law firm representing landlords.

Q: Our tenant has a lease-to-own option on his rental agreement. To date, he has not paid the rent on time, and has neglected to include the agreed-upon late fee. What does the law say about our options to declare him in default of the lease, and the lease-to-own option, and retake possession of the property? We have sent him a bill for the late fees due, certified mail, but he has not yet responded.

A: Smith: The landlord's perspective on options is that they are not a good idea. Lease options benefit only the tenant -- not the landlord. I do not recommend lease options to my landlord clients. Instead, I encourage them to make a choice: sell the property, or lease the property, but not both at the tenant's choice.

Arguably, the tenant is stalling because he can't make up his mind or qualify for the loan, or both. Carefully analyze the tax aspects. Further, I want you to take a careful look at your option and default clauses in the lease. If the lease provides that the option can be extended provided the tenant is not in default, then there exists no rent to purchase when the rent is due and unpaid.

But, without this type of clause, the option may still be exercised with proper notice, as per the terms of that provision. Even though there are late charges and other expenses owing, the option can be exercised unless the lease is declared forfeited by an unlawful detainer action.

Once evicted and the lease forfeited, under ordinary circumstances, the tenant will have no right to exercise the option.

Kellman: I agree with Ted that these lease/option-to-purchase contracts are not a very good idea but I disagree with Ted in that I feel these contracts benefit landlords and not tenants.

In fact, these contracts can easily cause tenants to lose a lot of money. This happens when the tenant pays an extra nonrefundable option fee or additional monthly payment toward the down payment.

If the lease is somehow terminated (e.g. by offering to pay the rent a bit too late), the tenant may lose all that extra money paid over and above the rent. Thus, a landlord may keep some of the purchase price paid by the tenant and keep the home, too. Not a bad deal for the landlord but awful for the tenant.

In your case, you should not have much trouble in declaring the lease forfeited. All you need to do is proceed with legal action regarding the nonpayment of rent.

Most lease/option contracts will provide that the option to purchase is lost if there is a default of a material obligation in the lease which, of course, includes paying the rent.

If the rent is not paid within the time allowed by law, the lease can be declared forfeited which may result in the eviction of the tenants and will most likely terminate any option to purchase the property.

Of course, any additional option money paid to you should be handled as per the contract. Landlords and tenants should have any such lease/option contract reviewed by an attorney before they sign.

Druggie daughter

My husband and I are senior citizens and have rented an apartment for over four years. We are very private people and have a potential problem with our dysfunctional, drug-abusing daughter. We will be traveling extensively this summer and are worried that our daughter will seek to gain entrance into our apartment.

Our daughter does not live with us and is not on our lease. Nonetheless, she is extremely manipulative and may be able to convince the owner to give her access. We really don't want to air our dirty laundry with the owner. Do you have any other suggestions?

Griswold: Legally, your daughter has no right of access to your apartment absent your specific authorization. It would be extremely unwise for the owner to allow her to enter and they could be liable for any loss.

Of course, the manager cannot be responsible should your daughter forcibly break into your rental unit. I do suggest that you let the manager know, in writing, the situation and that under no circumstances is your daughter to be allowed access to the premises.

Prudent managers and rental owners will recognize this request and will refuse to allow anyone, including the daughter, access to the premises.

Parking problems

We rent an apartment in a small triplex that has three narrow garages off a public alleyway. The narrow garage and driveway combined with the size of our car requires us to back into our garage at an angle.

Up until recently, everything was fine. Now we have a new neighbor who lets his friends park in front of his garage so that we cannot easily get into our garage without honking the horn and waiting for someone to move one or more vehicles.

Our neighbor's friends also frequently hang out in the driveway working on their cars and disrupting our formerly quiet community. We have asked the owner to post signs prohibiting parking in front of the garages, but he is not willing to do this. Since he lives off-site, he cannot see firsthand what we are faced with.

We are on a budget and cannot afford to move. What do you suggest?

Smith: I see a couple of reasons to have the car towed away. If the vehicle is positioned on the public alley, it can be towed away for that reason alone. Police can be contacted and the vehicle towed in accordance with California's Vehicle Code.

If it turns out that the car is off the alley and on private property, then turn to your landlord. He has the right to have the car towed away since it is not unauthorized on his private property.

Most cities require that proper tow-away signs be posted in conspicuous locations. These signs can be purchased.

IF YOU'RE A TENANT OR LANDLORD, the authors stand ready to answer your questions in this column, although letters cannot be answered individually. Write them at: Rental Roundtable, Homes Section, San Diego Union-Tribune, P.O. Box 120191, San Diego, CA, 92112-0191. Or you may e-mail them at rgriswold.sdut@retodayradio.com

Copyright Union-Tribune Publishing Co.

Back to 2000 Rental Roundtable Index

Robert Griswold and the Real Estate Today! radio show strongly support the intent and the letter of all federal and state fair housing laws. As a reminder to all owners and managers of real estate, note that all real estate advertised is subject to the Federal Fair Housing Act, which makes it illegal to advertise "any preference, limitation, discrimination because of race, color, national origin or ancestry, religion, sex, physical disability, or familial status, or intention to make any such preference, limitation or discrimination." Additional state and/or local fair housing laws may also apply. Be sure to inform all persons that all dwellings offered or advertised are on an equal opportunity basis.

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Revised and Updated - Wednesday, April 26, 2006

Robert S. Griswold, CRE, CPM, CCIM, PCAM, GRI, ARM
Griswold Corporate Center
Griswold Real Estate Management, Inc.
5703 Oberlin Drive, Suite 300
San Diego, CA 92121-1743
Phone: (858) 597-6100
Fax: (858) 597-6161
Email: rgriswold.ret@retodayradio.com