Most Lease Option Transactions Are Really Installment Sales

Finally, the standard lease-option that everyone seems to have gone gaga over is a lease-option in name only. In the real world, this is called an installment sale. Why? Because under the terms contained in a standard lease-option agreement, the relationship between the parties is that of debtor and creditor, and not that of lessee-optionee and lessor-optionor. This debtor-creditor relationship is created whenever the terms of a lease-option call for the property owner (lessor-optionor) to credit the option consideration and a fixed portion of the monthly lease payment toward the purchase price when the real estate option is exercised. Once this debtor-creditor relationship is created, the tenant (lessee-optionee) has an equitable or ownership interest instead of a leasehold interest in the property being lease-optioned. When a lease-option agreement gives the lessee-optionee an equitable interest in the property being lease-optioned, it becomes an installment sales agreement and not a lease-option agreement. This means that if the tenant must be evicted, the owner could be forced to file a costly and time-consuming lawsuit to foreclose instead of an eviction lawsuit. Please consider this when you contemplate ignoring my advice and becoming a party to a standard sublease-option transaction!

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