An Arizona judge who wrote the state's Landlord/Tenant laws said this in a court case: Here are five things that may violate the law or cause the court to classify the transaction as a disguised sale. 1. Collection of more than 1.5 times the monthly rent as an Option Deposit. 2. Collection of an Option Deposit or Rent Credit to be credited to a Purchase or to discount the Purchase, as in a Down Payment. 3. Pre-Determining an end Purchase Price as in delaying or disguising a sale. 4. The Leasee also holding an Option on the same property in which they are leasing regardless if it is one document or two separate documents. 5. The Leasee being responsible for maintaining the property. An investor acting as an equity purchaser buys a property and leases it back to the seller with an option to buy. The transaction is not a genuine lease option: it is a real estate loan. The lender, who characterizes himself as an investor/buyer, in this case holds the grant deed to the property as security for repayment of principal and interest, rather than using a trust deed to document the transaction. [CC1695.12] When a lease option is a masked land sale contract, the tenant with a purchase option becomes a buyer with equitable ownership of the property - equitable because he is in possession of the property and makes the payments, which applies in part against the purchase price, but has not yet received the deed. [Mc Clellan v Lewis (1917) 35 CA64] The landlord in fact becomes the carry-back seller in law - secured with different rights than an owner - even though me may retain the title. [LA Invest. Co. v Wilson (1919) 181 C 616]
