Lease Options: Are Tenants Protected?

I’ve just read an interesting blog post by David Lawrenson over at Letting Focus about a potentially expensive pitfall for tenants in the whole lease option idea.

A lease option basically works like this:

• Tenant rents property in usual way

• Landlord offers option to buy within a defined period (a year or two, for example) at a price agreed today

• Tenant pays lump sum up front (£2-3k, for example) plus a premium on the rent for the privilege

• If tenant buys, he gets some of this back plus the benefit of last year’s house prices;  if he doesn’t buy, he loses the money invested

Now, in theory, there’s nothing wrong with the idea – house-builders have used this ‘rent to buy’ concept as a way to sell when times are tough and it’s been great for struggling first-time buyers.

But what if the landlord is a small-scale buy-to-let investor?  And what happens if said investor, for example, defaults on his mortgage payments or goes bust?

This is especially worth asking since some investment ‘gurus’ are pitching the lease option idea to struggling landlords - see this lease options article, for example.

From the tenant’s point of view, as David points out, the process may be fraught with risk.

Is he right? If any of you out there know more about this, we’d like to hear your views.

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