Rent-to-own or Rent-to-Buy is an arrangement that provides for the rental of a property for an agreed period, at the end of which, the renter has the option to buy. It holds a number of benefits for young buyers who are unable to qualify for a bond or buyers unable to access financing due to the tough economic climate. In addition to the benefits for the Tenant, these arrangements appeal to Owners because tenants rent with a view to one day owning the home, they are more inclined to keep it in good condition, which consequently benefits the Owner.

This is an Agreement between an Owner and Tenant that allows the Tenant to rent, live and enjoy the property and ultimately become the owner thereof. 

Several legal questions need to be addressed in respect of these agreements. Therefore, it is important to ensure that all contracting parties understand all aspects of the Agreement.

Frequently asked Questions

When Will, The Renter, Rightfully Own The Property? 

Ownership will remain in the present owner's name until the sales price has been paid in full and all the terms contained in the Agreement have been met.

Can The Property Be Sold Before Ownership Is Transferred?

Generally speaking, no, the Tenant's rights regarding the property are limited until the full purchase price has been paid. However, the Agreement could provide for the process in terms of which an earlier sale would be possible and potentially provide for the Owner and Tenant sharing the proceeds. This is a critical component to keep in mind when considering this type of transaction.

Payments Made And The Meaning Thereof?

The Agreement should ideally set out the payments and attribute to rental or purchase and a total. If this is not done, this may very well become the cause of a dispute between the Owner and Tenant.

In addition, an important consideration would be the eventuality where a Tenant does not make a payment or only pays a portion thereof. The Agreement should have a mechanism for dealing with what would essentially be a breach of contract and further, potential damages on either side.

Who will be liable?

Well, it depends... Liability from an insurance perspective (insurable interest) would fall on the Owner for as long as he /she remains the registered owner. In terms of reasonable maintenance and upkeep, this would rest on the Tenant. It is however important to deal with the aspect of improvements and further, maintenance that go beyond the normal / expected. A clear Agreement should be reached and undertakings made to ensure that both parties know what is expected and where the risk lies.

Conclusion

The intention of the Agreement should always be clear and concise and have the necessary foresight to deal with issues that could lead to disputes. 

Originally published 23 May 2021

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.