Who pays the taxes and insurance for a rent to own home?

We had someone recently hit our site when they asked this question in their Google search.  I thought I’d answer it for the next query.

The terms “Rent to Own” or “Lease Option” or “Lease Purchase”, are synonymous except for one small difference in the contract. They total contract is really 2 different agreements.  Depending upon how they are drafted, they may be in a single contract, or they may be 2 different contracts that run concurrently.  A Rent to Own contract is comprised of a Lease that gives the Tenant/Buyer the right to pay rent and occupy the house for a stated period of time, along with an Option that gives the Tenant/Buyer the right, but not the obligation, to buy the property at some stated price for a fixed length of time called the Term.

The Lease may run for 12 months and the Option may run for 36 months, or even longer, but the two contracts together between the Seller and Tenant/Buyer form the Rent to Own or Lease Option agreement. The only difference between an Option and a Purchase agreement is that the Option gives the Buyer an out, they can elect not to close the sale,  the Purchase agreement says the the Buyer must buy or the Seller could sue for specific performance because the Buyer broke the contract.

In a Lease, the Seller retains the Legal Title as the owner until a sale is closed or concluded. The Seller is responsible for payment of taxes and insurance and HOA fees since they are the legal owner of the property.

Hopefully the market rent that the Seller charges for the Lease is high enough that the sum of their mortgage payment, taxes, insurance, and HOA fees is covered by the rental amount.  That is not always the case on some higher priced houses, or houses where the Seller got stuck with a high interest rate loan and high mortgage payments.  In that event, then the Seller may have to chip in the amount not covered by the rent each month in order to make the payments.

As the owner, the Seller should be making the tax and insurance payments to ensure that they are made each year.

Leave a Reply

Your email address will not be published. Required fields are marked *