Purchase & Sale agreement when buying L/O? - Posted by Brian M. Powers(MI)

Posted by Jerry on January 24, 2002 at 20:35:49:

Both parties sign if/when the option is exercised. It’s just a way to lay out the terms of sale in advance, thereby avoiding the possibility of a binding purchase agreement from the get-go. The option could point to the unexecuted purchase contract.

You could spell out the terms in the option, as you suggest. I’m suggesting this as an alternative, simply for convenience, as purchase agreements can sometimes get long. Also as an alternative to signing at the time the option is executed, as Lloyd suggested, which I think is problematic and unnecessary.


Purchase & Sale agreement when buying L/O? - Posted by Brian M. Powers(MI)

Posted by Brian M. Powers(MI) on January 23, 2002 at 08:55:52:

Is it necessary or recommended that I as the T/B also sign a Purchase and Sale agreement w/ the Landlord/Seller when entering into the L/O agreement, giving a nominal amount of say $10 as earnest money?


1 Like

Yes - Posted by Lloyd Cook, Los Angeles

Posted by Lloyd Cook, Los Angeles on January 23, 2002 at 10:06:29:

Absolutely! You want to have all the details of the sale in writing up front for your protection. You should have two documents, the lease agreement and the purchase and sale agreement.

Re: Yes - Posted by JohnBoy

Posted by JohnBoy on January 23, 2002 at 23:27:09:

If you have a purchase and sale agreement then what good is the “option” if you already signed a purchase and sale agreement? That would be committing to buy, wouldn’t it?

Wouldn’t it be better to just include the terms of purchase in the option agreement IF you decide to exercise the option? If I decided not to exercise the option for any reason, I wouldn’t want a signed purchase agreement involved that would bind me into buying the property.

forms ready don’t mean you have to buy - Posted by Lloyd Cook, Los Angeles

Posted by Lloyd Cook, Los Angeles on January 24, 2002 at 01:33:51:

It is my understanding that you do not ?have to? buy the property, that is you don?t have to open escrow and deposit funds when you sign a purchase and sale agreement. The many classes I have taken over the years have always taught us to be sure we have two separate documents when selling or buying under the lease option method. I have sold several properties this way, half of them never opened escrow and either just went away or were evicted.
One very big benefit of the separate purchase and sale agreement being signed by both parties with all details worked out is that the buyer can go open escrow when they are ready without any additional input from the seller. The seller will have to sign the deed, buyer deposit funds, etc. for the escrow to close.

Re: forms ready don’t mean you have to buy - Posted by JohnBoy

Posted by JohnBoy on January 24, 2002 at 04:15:07:

You do not need to open escrow or even deposit any funds for that matter to make a purchase agreement enforceable. The mere signing of a purchase agreement by the seller and buyer is a legally binding contract where the seller agrees to sell and the buyer agrees to buy. Does your purchase agreement contain any wording addressing the purchase agreement is only subject to the buyer buying, by exercising an option they have on the property or something?

When I am the investor entering into a L/O with a seller I use a lease agreement containing the option to buy. The agreement requires the seller to sign a deed to be held in escrow up front during the L/O term. The agreement states the seller will pay half of all closing costs. It also states the seller agrees to sign a performance mortgage that I will record against the property which will protect my interests. Should any liens be caused by the seller to be recorded against the property I can foreclose with the performance mortgage and wipe out any liens recorded behind the performance mortgage. If the seller breached the agreement, such as trying not to perform by going through with the sale somehow, I can foreclose on the property with the performance mortgage. Basically, upon exercising my option the L/O agreement becomes my purchase agreement and the performance mortgage protects my interest in the invent the seller was to breach our agreement in any way.

When I’m selling on a L/O I use two separate agreements. A separate lease agreement with a separate option agreement. That’s it!

I wouldn’t use a purchase agreement when selling on a L/O since a purchase agreement could easily be used against the seller by a Judge reclassifying the L/O as a contract sale agreement forcing the seller to go through a judicial foreclosure instead of a simple eviction. I don’t want anything that appears the tenant is buying the property. They are not buying. They are only leasing and have an “option” on the property to buy at a later date. Anything in a L/O that has any wording pertaining to “down payments”, “large rent credits”, “principle and/or interest”, “taxes & insurance”, “purchase agreements”, etc., could be used to reclassify a L/O as contract sale.

IF my tenant decides to exercise their option, then, and only then, will we enter into an actual purchase agreement. Until that time they only have an option agreement that states the option price to be paid and the optionee agrees to pay 50% of all closing costs.

If this a sandwich L/O with me in the middle then my seller is paying half the closing costs on their end, while my tenant/buyer is paying the other half on their end. I pay no closing costs.

Now on the other hand, if you were doing a lease/purchase agreement, then I could see where you might use a purchase agreement also, since a lease/purchase would be a lease that requires the tenant to buy at the end of the lease/purchase term.

But under a lease/option, the tenant is not obligated to buy, they only have the option to buy. Under this agreement I would not use a purchase agreement.

Also, a purchase agreement does not have to include any money to be put up in order to have an enforceable legal binding contract. No earnest money is required.

See the article written by a CA. attorney about this at this link:


Re: forms ready don’t mean you have to buy - Posted by Jerry

Posted by Jerry on January 24, 2002 at 10:21:47:

Draw a purchased agreement and leave it unsigned until the option is exercised, as another alternative.

Re: forms ready don’t mean you have to buy - Posted by JohnBoy

Posted by JohnBoy on January 24, 2002 at 12:56:59:

Alternative to what? What good is it if it isn’t signed by all party’s involved? I don’t see any point to it.

Isn’t an unsigned contract worthless? NTXT - Posted by Brent_IL

Posted by Brent_IL on January 24, 2002 at 11:20:44: