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aaronj231

Question on best way to do it

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I just did a deal where I tied the property up a purchase contract that had a long

closing 3 years and I have "subject to business partners approval" right till the

closing day giving me an out. Then I have a seperate lease agreement with

the seller.

 

No my question is this the right way to do a lease purchase deal? Or

should I be using an actual option contract instead of a purchase

contract with subject to's?

 

Let me know you thoughts on this please. I plan to find a buyer

with a downpayment and sell it to them the same way with a

seperate lease and a purchase contract for a 3 year closing.

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Technically what you've done is a true "Lease Purchase" because it's a lease + a purchase contract, as opposed to a Lease + Option. Theoretically a Lease Purchase obligates you to purchase the house, however we all know that conditions can be added to allow an out.

 

It's just my personal opinion but I think there's no chance that "subject to business partners approval" will hold up in court if you try to use that as an escape 3 years down the road. It might work for a few weeks while you get your T/B in place, but beyond that you're going to need something more substantial. If you want to use a purchase contract it must always contain a financing clause at the very least. What happens if in 3 years your T/B can't buy and neither can you? Well, now you've got a lawsuit on your hands.

 

An option solves those kinds of problems because you have the right but not the obligation to purchase the property. If you can't get financing then you simply don't exercise your option.

 

So although things may very well turn out just fine over the next 3 years, you should at least get that financing clause included in your contract or switch to an option just in case.

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Technically what you've done is a true "Lease Purchase" because it's a lease + a purchase contract, as opposed to a Lease + Option. Theoretically a Lease Purchase obligates you to purchase the house, however we all know that conditions can be added to allow an out.

 

It's just my personal opinion but I think there's no chance that "subject to business partners approval" will hold up in court if you try to use that as an escape 3 years down the road. It might work for a few weeks while you get your T/B in place, but beyond that you're going to need something more substantial. If you want to use a purchase contract it must always contain a financing clause at the very least. What happens if in 3 years your T/B can't buy and neither can you? Well, now you've got a lawsuit on your hands.

 

An option solves those kinds of problems because you have the right but not the obligation to purchase the property. If you can't get financing then you simply don't exercise your option.

 

So although things may very well turn out just fine over the next 3 years, you should at least get that financing clause included in your contract or switch to an option just in case.

 

Okay, the reason I did it that way is because I felt if the guy decides not to sell a purchase contract would

hold up more than an option? Any truth to that? I definately will try to get a financing condition in, I do have " subject

to inspection satisfactory to the buyer" although now I could see that one not holding because I kind of agreed that

the property is satisfactory by moving someone in there, right?

 

Also would you mention the lease in the terms of the purchase contract? I have "The seller will lease the

property to the buyer at $2000/month for a 3 year term starting July 1/2008"

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Yeah inspection and approval of partners and those sorts of clauses are usually short-term (offering you an out if you can't find a T/B for example) while financing and even a straight up termination clause cover you for the long-haul. Of course a financing clause is only an escape if you can't find financing. If you can then you are still obligated to buy. Whereas with an option you are never obligated to buy.

 

As long as it's recorded I don't think an option or a purchase contract would make any difference as far as obligating the seller to sell.

 

When buying, absolutely, the more your lease and option/purchase contracts are tied together the stronger your position. When selling it's the opposite.

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Hi, Aaron, and welcome aboard.

Sometimes we have a tendency to overthink the process and we end up outsmarting ourselves. I have to agree with what Doug said. I think leaning on that "subject to business partners approval" for a three year term is putting you on thin ice. That might work for about 30 days.

Instead, an option gives you an easy out if you can't or don't want to buy. The option expires and you give the homeowner back their keys.

 

Okay, the reason I did it that way is because I felt if the guy decides not to sell a purchase contract would

hold up more than an option? Any truth to that?

Possibly. The devil is in the details. In this case, that means the wording of your agreement plays a big part, along with local code and courts. A Memo of Option helps protect your position, and a Performance Mortgage even more so.

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I concur with the above statements about a lease purchase. It can be more dangerous than a subject to transaction, because at the end of the term, you are required to purchase the home. I don't think its a big deal, just tell the owner that your partner prefers the option agreement because its easier to convey your interest and it protects them as well as you more so than a regular purchase agreement.

 

If you do renegotiate the purchase agreement then the seller has a new opportunity to walk from the deal completely.

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I concur with the above statements about a lease purchase. It can be more dangerous than a subject to transaction, because at the end of the term, you are required to purchase the home. I don't think its a big deal, just tell the owner that your partner prefers the option agreement because its easier to convey your interest and it protects them as well as you more so than a regular purchase agreement.

 

If you do renegotiate the purchase agreement then the seller has a new opportunity to walk from the deal completely.

 

Thanks for the advice guys! So what I got from all this is that It would probaly will simpler with a lease/option or

a pure option and then a seperate lease? So I can now just have the seller sign the option contract and void

the purchase the contract? Also I am in Canada, I've never heard of a performance mortgage, option memo,

we have caveats that cloud the title and let would be purchasers know that you have an interest in the property, is that the same thing?

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Aaron

 

Yes caveats are pretty much the same as an option memo, I 've heard of performance mortagages in Canada but I've haven't used them and I don't know anyone who has. Do yourself a favor get a termination clause like Doug said in your contracts. I also get the feeling that you haven't talked to a lawyer about this yet you might want to get some idea about Alberta law. This is my suggestion buy Mcs course or find a contract you will be comfortable with so that you can explain to a lawyer what you want to do and get them to draft new contracts according to the residential tenancy act. This way you will be able to be 100% confident in what you are doing. This is what I am doing right now; keep in touch as a fellow Albertan I might be able to help you out in this regard in about a month.

 

Gord

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