Lease Options In Texas

Lease With Option To Buy In Texas

Lease To Purchase Homes In Texas

Lease options just like contracts of deed and lease-purchases are a type of executory contract. But lease options in Texas give the buyer the option of purchasing the property, but it has no terms concerning how the complete payment will be made. Instead, a lease option fixes a specific sales price for a property and leaves it up to the buyer to either make payments during or at the end of the rental period.

What Are Executory Contracts?

Texas Commercial Lease With Option To Purchase

An executory contract is a contractual agreement that has been signed by the parties involved, but the full performance of the contract will happen at closing in the future. But the buyer will only get the title (a deed) after the contract is fully performed. For example, in a land sales contract the buyer makes payments for the number of years agreed on in the contract and receives the title or deed after that.

Unlike a traditional real estate contract, executor contracts give possession of the real property to the buyer before the agreed on payments are complete. But the seller holds on to the deed or title. In a normal real estate contract, the buyer only gets possession of the real estate after the buyer completes the payment.

Under a traditional real estate contract, buyers must complete the purchase of real property but they only have the obligation to complete payments under an executory contract.

Why Changes Were Made To  Executory Contract Laws?

Lease To Own Land In Texas

Lease Options In TexasLandlords used to find it easy to use these types of contracts to induce tenant-buyers because of the low down payments involved and how easy they could forcefully evict tenants.  Some unscrupulous sellers would disregard buyer’s equitable rights and would lie to justices of peace that the buyers were normal renters. They could do this not only because executory contracts gave sellers a huge advantage but also because it was very expensive for buyers to file a lawsuit to enforce such contracts.

But after a change in laws in 2005, these contracts now favor the interests of the buyer more than the seller. Now the lender must approve the executory contract between the seller and buyer.  New consequences introduced by the new laws include the buyer’s ability to rescind a contract and receive a full refund of payments that they made to the seller.  Most of the risks for investors that relied on executory contracts have been eliminated.

Requirements For Lease Options In Texas

Texas Lease Option Laws

The requirements for lease-options in Texas are contained in Property Code Sections 5.069 and 5.070. The requirements state that:

  • A seller must provide the buyer with a survey that is not older than a year
  • There should be no “restrictive covenants, easements, or other title exceptions or encumbrances that prohibit construction of a house on the property”
  • There should be a notice advising the buyer to obtain a title abstract and seek the advice of an attorney on the validity of the contract before signing
  • Seller must provide the buyer with copies of restrictive covenants, liens and easements affecting the title of the property
  • Seller must disclose the condition of the property to the buyer and more

Your real estate attorney can give you a detailed explanation about these requirements and other additional requirements.

You May Also Be Interested In…

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Texas Real Estate Law Firm FAQ

Are lease options legal in the state of Texas?

Without a doubt, a lease-option is still possible in Texas, but there are now a number of restrictions that did not exist prior to 2005. A number of these requirements can be found in Property Code Sections 5.069 and 5.070, which must be met before the purchaser signs the executory contract.

What are the different lease options in Texas?

Closed-end and open-end leases are the two types of leases. Closed-end leases account for the great majority of leases.

How do lease options work in Texas?

A lease-option agreement is a contract between a landlord and a tenant in which the renter agrees to buy the property at the end of a set period of time. The tenant pays an option fee up front, as well as a monthly amount that goes toward the down payment.