How to protect yourself in a lease option

What are the minimum standards that would-be purchasers — and investors — should look for in lease-option contracts? For starters, people with serious credit problems should not participate at all, unless they feel they can raise their credit scores within the 12 to 24 month lease period. Second, the rent level and house price should be fair. Consumers should expect to pay a little more per month to help with the eventual downpayment. But they should not sign up for an excessively high rent nor should they agree to buy the unit at a price that doesn’t reflect the likelihood of appreciation slowdowns — even lower prices — as the local market cools over the coming year or two.

Finally, lease option promoters must be willing to demonstrate with hard proof up front that they have clear legal title to the property they are offering for sale. Buyers should also read the contractual language carefully to make certain they cannot be evicted or forced to lose their option fees for the most trivial violations of the lease terms.

The key to lease options is they’ve got to treat people fairly. Contracts should provide for at least partial refunds of option fees in emergency situations such as a divorce, death, or employment relocation beyond the control of the tenant-purchaser. Promoters should also take pains to qualify their lease option customers to weed out people who are never likely to purchase the house.