Rent-to-Own

In depth

Rent-to-own is a marketing label rather than a legal term. Underneath, the deal is structured as either a lease option or a lease-purchase. The tenant typically pays an option fee plus monthly rent that may be credited toward purchase. Misconception: many consumers believe they are building equity; in fact, they only build a contractual right to buy, and that right can disappear if they miss a payment. Practically, rent-to-own is heavily regulated as a consumer transaction. Sellers should disclose total cost of ownership, comply with state rent-to-own statutes, and use written agreements that distinguish rent from option consideration. Buyers should record a memorandum of option and require the landlord to keep the underlying mortgage current. Always have an attorney review before signing.