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A rental agreement with a sale clause is a legal contract that allows a tenant to rent a property with the option to purchase it at a later date. This type of agreement is also known as a lease-purchase agreement or a rent-to-own contract.

It can be an attractive option for tenants who want to eventually own their own home but do not have the financial means to do so immediately. It can also be beneficial for landlords who want to sell their property but may have trouble finding a buyer.

How does it work?

In a rental agreement with a sale clause, the tenant pays rent to the landlord as usual. However, unlike a standard lease agreement, there is an additional clause that outlines the terms of a potential sale.

Typically, the agreement will include a purchase price for the property and a specified timeframe in which the tenant can exercise their option to buy. During this timeframe, the tenant may be required to pay a certain amount of money towards the purchase price, which is referred to as an option fee.

If the tenant decides to exercise their option to purchase, the option fee may be applied towards the purchase price. If they do not, the option fee is typically forfeited to the landlord.

Benefits for tenants

A rental agreement with a sale clause can be a great option for tenants who are looking to own their own home but don`t have the financial means to do so immediately. By renting with the option to buy, they can save up for a down payment while building equity in the property.

Additionally, the purchase price is typically agreed upon at the beginning of the agreement, which means the tenant can avoid any potential market fluctuations that may occur during the rental period.

Benefits for landlords

For landlords, a rental agreement with a sale clause can be a great way to sell a property that may be difficult to sell on the open market. It can also provide a steady stream of rental income while the tenant decides whether or not to exercise their option to buy.

Additionally, landlords typically set the purchase price at the beginning of the agreement, which means they can avoid having to negotiate with potential buyers.

Potential drawbacks

While a rental agreement with a sale clause can be a great option for both tenants and landlords, there are some potential drawbacks to consider.

For tenants, if they are unable to exercise their option to purchase, they will lose the option fee they paid. Additionally, if they are unable to secure financing to purchase the property, they may be forced to move out at the end of the rental period.

For landlords, if the tenant decides not to exercise their option to purchase, they may be forced to look for a new tenant or sell the property on the open market. Additionally, if the property increases in value during the rental period, the landlord may miss out on additional profits.

Conclusion

A rental agreement with a sale clause can be a great option for tenants who want to eventually own their own home and for landlords who want to sell a property that may be difficult to sell on the open market. However, it`s important for both parties to carefully consider the potential benefits and drawbacks before entering into the agreement.