Option Strategy - Posted by Brian

Posted by Rich-CA on November 17, 2008 at 12:08:46:

The only time a contract is necessary is in a dispute, so when drafting one assume a dispute. Here are the problems with a combined document:

(1) When tenant/buyer fails to pay do you have a lease or installment sale? Its up to the judge if both the option and the lease are on document.
(2) When a tenant/buyer moves out is the option fee part of the security deposit? If using a single combined document, its up to a judge as to whether or not you have to give the option fee back along with the security deposit.

The thing is: tenant/landlord law is pretty well defined (as such things go) so when you have a dispute with a tenant, your course of action is pretty well defined. The options thing is also pretty well defined and very simple in concept. Where the straightforward path in a dispute goes away is when you take two unrelated things (leases are related to occupancy and options are related to purchases), toss them in a blender, and produce a hybrid. When you over complicate things you leave much more up to the interpretation of the judge who looks at your dispute.

Option Strategy - Posted by Brian

Posted by Brian on November 17, 2008 at 11:18:36:

If it is necessary to separate a lease from an option for both liability and foreclosure rules then why not use the following design

Home @ $100,000

Lease home for $500 per month

Sell Option for $5,000
Year one purchase price is 95,000
Year two purchase price is 94,000
Year three purchase price is 93,000

$83.33 credit per month would be built into this scenario, but not stated specifically.