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      Moraira (Alicante)

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Rent to buy - How does it work?

Domus Costa Blanca

 

Rent to buy – How does it work?

The difficulty to Access credit and the economic situation there are many people who are unable to get on the property ladder and end up renting for most of their lives. For many people a ‘Rent to Buy’ is a common solution to be able to have a property of their own in the long run.

What does it involve?

A ‘Rent to Buy’ is a mixed contract composed of two subcontracts – one relating to the rental part of the agreement and the other relating to the purchasing part. The contract allows the tenant to rent and live in the property for a predetermined length of time through which the monthly rental cost is partially or fully deducted from the end purchase price of the property.

For example, if a monthly rental of €1200 is paid for an agreement of 3 years, at the end of the 3 years, around €43,200 the purchase price of the property would have been paid off so the remaining to pay is significantly less. *(depending on the agreed conditions if all or part of the monthly rental will be deducted from the final price.

It is a "pre-contract, in principle unilateral, by which one party grants to the other the exclusive power to decide on the conclusion or not of the main contract of sale, to be carried out within a certain period and under certain conditions, and may also be accompanied by the payment of a premium by the opting agent."

This type of contract proves beneficial for both parties, the buyer and the seller. It provides a way the tenant can invest their rental money into a property and for the buyer, they have a steady income and guaranteed care of their property – including bills and usually maintenance.

This type of agreement does not have to mean a rent rate that is higher than in a normal contract, but it does imply a greater initial outlay of an agreed percentage of the property value usually 10% but with option of being higher depending on what can be afforded, since it must offer a premium on the option to purchase, which is usually much greater than the amount provided in a usual rental deposit. In addition, in the case of the premium and unlike what happens with the sureties, if in the end the tenant does not decide on the purchase of the house, they will lose all the invested money.

For that very reason, it is very important to ensure that, when the time comes, you will be able to pay the purchase price or opt for a credit.

What will the contract consist of?

A rent to buy is not a typical standard contract, however it is well known and recognized. It is important to be sure of the conditions of the contract as the terms are negotiated on a case by case basis between the owner and the buyer – always get a contract checked by an independent adviser/solicitor before signing. In the case of a contract being translated, it is important to remember that here in Spain the Spanish version of contract will take precedence.

Have clear the conditions of the contract and the prices: of deposit, monthly payments (and proportion deducted from the overall value of the property) and value price of the property. The buyer will pay the agreed value price of the property on signing of the contract – no matter if the market value of the property increases or decreases during the time of the contract.

Due to it being two subcontracts in one, it is important that the contract reflects both the conditions of the rental and the purchase:

Rental Contract

-      Time period of which the tenant will rent for (maximum of 5 years).

-      Time period of which the tenant can buy the property (can be before the rental period if agreed by both parties).

-      Monthly rental amount.

-      Who is responsible for any community/maintenance costs.

Purchase contract

-      The agreement that the landlord will sell the property to the tenant

-      The agreed sale price of the apartment

-      Percentage (fixed or variable per year) of the rental fees made up to the time of purchase to be discounted from the sale price

-      Amount of the initial premium provided by the buyer for the right to purchase, normally fixed based on a percentage of the agreed sale price (around 10%)

Please note, that each rent to buy contract depends on the terms agreed by both parties with regards to payment terms and amounts, deposits and responsibilities as specified in the relative contract – always get contracts reviewed by a trusted and impartial adviser.  

Here at Domus Costa Blanca S.L. we can help you find rent to buy options or offer your property on a rent to buy basis. So, get in touch today and let us do the rest!

Charlotte Villiers: +34 689906474 , +34 966491220, sales@domuscb.com

www.domuscb.com/

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