After the impact of Covid-19 on our personal and professional lives, the time has come to look to the future and see which housing option best suits our needs in the post-covid19 real estate market: purchase, rent, rent with option to buy… This last option has undoubtedly seen an upturn in recent months due in large part to the uncertainty that many people face in the workplace.
In addition to the job prospects in the short and medium term, the foreseeable drop in real estate market prices and the reduction in income of most family units has led to a rebound in the option to rent with the option to buy; something that in Proddigia we have already begun to notice among our clients.
What exactly is rent-to-own?
Rent-to-purchase is a mixed-type rental option, as it includes two different subcontracts: one for rental and one for sale. With this type of contract, the tenant can live in the house for a limited time in exchange for the agreed rental payment. Once this period ends, you will have the right to acquire it for the corresponding price, from which the payments that have been made as a rental up to that moment will be totally or partially discounted.
According to the Supreme Court, it is “a pre-contract -in principle unilateral-, by virtue of which, one party grants the other the exclusive power to decide on the conclusion or not of the main contract of sale, which will have to be carried out within a certain period and under certain conditions, and may also be accompanied by the payment of a premium by the applicant.”
What should be taken into account before making a rent-to-own contract?
The first thing to take into account when making a rental contract with the right to purchase is that this is an atypical type of contract not contemplated by the Law and that, as such, it does not appear explicit in the Civil Code, although it is true that it is regulated by and recognized in the Mortgage Regulations and in the Urban Leasing Law(LAU).< /strong>
For this reason, a basic aspect of this type of contract is that the conditions must appear very well defined and detailed to avoid possible problems in the future.
You should also know that these types of contracts do not have to mean a higher or lower rental fee, but they do entail a higher initial payment corresponding to the premium for the option to buy. In the event that the tenant does not decide, for whatever reason, to formalize the purchase contract, they would lose said premium in full, unlike a deposit in a rental contract without the option to purchase, which is refundable.
Frequently asked questions about renting with the option to buy
Here we are going to answer three of the questions that our clients ask us the most in reference to the option of rental contracts with the right to purchase; If, after reading them, you still have questions about this option, you can contact us and we will try to resolve them.
Is it possible to extend the rent corresponding to a rental contract with the option to buy?
If the owner accepts it, the tenant can extend the rental contract even if it is with the right to purchase. Even so, in the event of said extension, the purchase option would be canceled as it is a different contract; that is, the tenant would lose the premium that gave him the option to purchase and whose payment he made at the time of fiSignature of the previous contract.
Can the purchase of the home be formalized before the end of the term designated for rent with the option to buy?
Yes, the purchase of the home can be formalized long before the end of the maximum term set for the duration of the rental. In fact, the most common situation is that it is the tenant himself who asks to formalize the purchase before the end of the first two years of rent.
What are the tax benefits of renting with the option to buy?
Since they are subject to Onerous Property Transfer Tax, different tax situations may arise:
– If the contract only specifies the term and price of the home during the rental, the tenant may deduct the rental expenses and the owner must declare the income received for this concept. In addition, when the sale is made, the owner must declare the equity gain.
– In the event that the tenant pays the owner the premium corresponding to the right of the purchase option, the latter must declare it as a profit, but the tenant will not be able to deduct it.
It is, therefore, an option that at this time may be interesting for all those people who are affected by job uncertainty and who do not know if they will be able to pay the installments of a long-term sale . In the event that, when the time comes to formalize the sales contract, they are able to pay the full purchase, they will have the added benefit of having already made part of the payments.
However, renting to own is not only beneficial for the tenant, but for both parties; given that the landlord keeps his rented home and receives the relevant income in exchange with a view to a (more than possible) formalization of the sale.
