Can a Landlord Break a Rent to Own Contract? Key Insights

Everybody knows that real estate is a fantastic investment idea. One of the most popular ways people get to own their own house or apartment is through a rent-to-own agreement. A rent-to-own deal can be a convenient path to homeownership.

However, life happens, and not everyone gets to keep the property they once thought would be theirs. Sometimes, the tenants realize that the purchase price is out of their budget or choose another place to live. But can a landlord break a rent-to-own contract? We’ll discuss whether this is possible.

What is a Rent-To-Own Contract?

In a nutshell, a rent-to-own contract is a lease agreement in which the tenant decides to rent a property for a defined period. Once the rental agreement expires, the tenant can choose to purchase the place. Lease purchase agreements include monthly rent payments, a lease period, and the responsibilities of both parties regarding the rental property. This contract also outlines the terms and conditions for the rent-to-own property.

Before the tenant signs the contract, they should read the rent-to-own terms thoroughly. It’s not advisable to simply sign rent-to-own arrangements without fully understanding the responsibilities.

Essential Parts of a Rent-To-Own Contract

A legally binding contract is essential when a rent-to-own home is involved. This serves as the blueprint for the rent-to-own process. Aside from the property’s purchase price, the lease purchase contract should have two vital elements: the rent agreement and the option to purchase.

Rent Agreement

Like regular tenants, rent-to-own tenants must have the fundamentals in their rent-to-own contracts. This portion contains the monthly rent fee, usually higher than the property’s value. The excess amount becomes a down payment or rent credit towards the actual purchase. It’s also deducted if the tenant decides to buy the property.

Option to Purchase

A rent-to-own agreement must also contain a portion wherein the rent-to-own tenant gets to decide whether they’re pushing through with the purchase or not. This option allows them to assess whether the purchase price is within their means. This part should stipulate the option fee, which secures the tenant’s right to buy the place once the rent agreement expires.

Alternatively, the rent-to-own agreement can contain a purchase agreement instead of an option-to-purchase portion. This certifies that the rent-to-own tenant agrees to buy the place beforehand. It solidifies the tenant’s intent to purchase and can only be nullified under certain circumstances.

Is it Legal for a Landlord to Break a Rent-To-Own Agreement?

Yes, it is legal for a landlord to break the rent-to-own deal, but they must provide a sound reason for opting out. In particular, there must’ve been a breach of contract terms. The rent-to-own agreement contains various obligations; if these aren’t met, the landlord is authorized to nullify the rental agreement.

Common Reasons for Contract Termination

There can be various reasons why a landlord would break a rent-to-own agreement. The most common cause is the tenant failing to pay rent on time. While a one-time violation may be excused, repeatedly missing payment can prompt the landlord to cancel the contract.

Another common reason is the failure to secure financing to afford the purchase price. In most cases, rent-to-own tenants would turn to a third-party institution like a bank to afford the rent-to-own property. However, there may be instances wherein the tenant doesn’t get to secure a mortgage plan to afford the purchase price.

The property may have been damaged. Until the tenant fully pays for the property, it technically still belongs to the landlord or property owner. The landlord can cancel the agreement if the tenant sabotages the place beyond the usual wear and tear.

Why Contracts Get Cancelled?

The landlord isn’t the only one authorized to withdraw from a rent-to-own agreement. The tenant may also choose to cancel the contract. To avoid penalties, the tenant must have a sound reason for canceling the lease agreement. There should be a breach in contract terms for them to avoid paying penalties.

When the tenant signed the lease agreement, they must have been in a position to afford the place. However, this may have changed over time. The tenant may have to pay penalties if they choose to withdraw from the deal.

The Relevance of Legal Assistance

Whether the person canceling a rent-to-own agreement is a landlord or tenant, it would be best to seek advice from a lawyer who has experience with similar cases. These experts can thoroughly analyze lease-purchase agreements and find loopholes that would benefit their clients.

The financial implications of significant financial transactions such as lease purchase agreements can be expensive. When a vast amount of money is involved, it’s best to seek expert guidance.

Special Protections for Service Members

But what if the person involved in the lease agreement is an active duty service member? The Servicemembers Civil Relief Act (SCRA) can help military tenants in various ways. First, the SCRA stipulates that landlords aren’t permitted to evict tenants due to nonpayment as long as they’re on active duty.

This protection can grant military members three months of delay before the eviction process can continue. The court may even grant the option to extend this delay.

The SCRA also permits active duty members to cancel contracts without penalties. If it can be proven that a service member has to move across states for military service, they can cancel a contract without being charged a cancellation fee.

Conclusion

The landlord is authorized to break a rent-to-own agreement if they have a just reason for doing so. However, a military tenant may be granted special treatment because of the SCRA. Because of the financial implications, the landlord must stay vigilant and confirm whether the tenant is eligible for SCRA rights.

This is where SCRACVS can help landlords determine a person’s military status. Likewise, military tenants can use our services to prove their active duty service. Click here to sign up at SCRAVS and verify the active duty status.

FAQs

Can a landlord break a rent-to-own contract in California?

Yes, a landlord in California is authorized to break a rent-to-own agreement if there is a breach of contract. The lease agreement outlines the valid reasons for doing so.

How does rent-to-own work in PA?

In Pennsylvania, rent-to-own is referred to as installment land contracts. The lease agreement must abide by the state’s laws to avoid legal dilemmas.

Why is rent-to-own a bad idea to utilize?

Monthly rent payments are usually higher in this arrangement, and there may be instances wherein the tenant cannot afford to meet their end of the bargain. They may have to forfeit some money if they have to cancel the contract, too.

What Should Be Included In A Rent-To-Own Agreement?

This contract should include vital parts, such as monthly rent payments, lease terms, down payment terms, responsibilities of both the landlord and tenant and the like. The contract should also stipulate if the agreement is option-to-purchase or if the tenant agrees to buy the rental property beforehand.

How much notice must a landlord give to terminate a rent-to-own agreement?

It depends on the state where the rental property is located. The shortest permitted period of notice for rental agreement cancellations is 30 days.