Lease Options - Who is responsible for repairs?
This is a fairly common concern people have when it comes to lease options. After all, repair costs can really add up if the home is older and needs maintenance or the option period is for a long time.
The answer to this really depends on what type of real estate market you do your lease option deal in and also it depends entirely on what you put into your contract.
In a seller's market I usually have the rent to own buyer be responsible for all repairs. This is very convenient for a lease option investor. My lease option contract will say that the lease option buyer is responsible for all maintenance, major and minor. However, if I end up having to do any repairs, I'm going to add the cost to the purchase price at closing. Let the rent to own buyer think through their own possibilities first, but if they still don't know what to do, then send your own maintenance people and recoup the cost at closing.
For example, if the lease option buyer's heat goes out in the middle of a Michigan winter, it's crucial to get that fixed, both for the lease option buyer and to protect the lease option seller. On the other hand, if the air conditioning goes out in the summer, it's unpleasant but livable. Do NOT make your lease option buyer unduly fix too much, because if you treat the tenant like an owner then the court may treat you like you provided seller financing instead of a lease option. The tenant can claim that they've put so many dollars into the property and the court may make you go through a forfeiture or a foreclosure versus an eviction should the rent to own buyer stop paying their rent. In most states this would be much more expensive and much more difficult.
In a buyer's market you can put more of the responsibility for maintenance onto the seller. In a seller's market, I don't want my seller to do anything but be free and clear of that issue. However, I have to preapprove in writing any improvements my lease option buyers do.
Keep a copy of any letter regarding maintenance in the lease option buyer's record folder. When a rent to own buyer calls, I record what was said for their records also. The same goes for maintenance. I track everything. If the roof leaks, and someone slips and falls, accurate files will suddenly become very important!
This entry was posted on Friday, August 14th, 2009 at 8:48 am and is filed under Lease Option Training / Rent-to-Own Training for Home Buyers, Lease Option Training / Rent-to-Own Training for Home Sellers, Lease Option Training / Rent-to-Own Training for Investors, Lease options for real estate agents. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.