Who Is Responsbile For Paying Expenses In Lease Option
Lets's I invest in property with a lease option, who is responsible for paying the expenses, such as taxes, repairs, utilities,...etc. Is me, the original seller, or the tenant buyer...
I appreciate your response,
Thank you all,
sofianect
Well that depends on how you structure your lease.
If in it you say that the tenant is responsible for all expenses than essientially it becomes a triple net lease meaning that they pay everything there to live. This includes, taxes, maintance, utilities, assoc fees, etc..,
Typically though most residental lease is setup where the tenant only pays a monthly fee and this would cover rent and usually the utilies.
Repairs you can say that the tenant is responsible for up to say the first $50 or so and then you would cover the rest. On the otherhand you can have the lease say that they are responsible for all repairs.
It really depends on how you want to write it up. Obviously the less you have to pay the better but if ultimately you want to sell the place to them than I would maybe split some things.
Triple Net works well with commercial properties; however, you should never allow your T/B to pay for taxes and insurance.
[addsig]
I have two sandwich leases going in which the Sub-tenant/buyer is covering all maintenence up to $500 and the landlord seller is responsible for taxes, hazard ins., and maintenence over $500. (and part of the mortgage pmt on one)
that's Smart "jdflybuy", Well done
LeaseOptionKing is right about the taxes and ins. Do not let the T/B directly pay them or you might find yourself in a tough spot as you might have to actually forclose on them if they miss payments rather than a simple eviction. You can see how they might argue their ownership rights if they put money down and paid installments including their property taxes and homeOWNERS insurance.
Okay, so if the tenant/buyer doesn't pay the taxes and insurance, but the lessor does, then how do you do it so it's no money out of lessor's pocket? Does lessor cover it with the option payment and/or or down payment?
(I just thought the option payment and down payment were the lessor's to do with as he/she wishes. But if money has to be saved for later expenses, then....)
The Seller pays these in a sandwich lease (unless you pay the mortgage payment and PITI is included). If you own the property, you would collect enough in rent to presumably cover these and other costs.
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"A deal is only as good as the quality of your Contracts." --Me[ Edited by LeaseOptionKing on Date 01/17/2005 ]
I have not done a L/O deal. However, I have a tape program that talks about asset protection and one large section is devoted to this topic of L/O. I do not remember all of the details but one thing that I remember is you need to have your lease arrangement structured so that it is VERY CLEAR that they are renting and have responsibility for minor repairs up to a certain amount.
Contractually, the courts and IRS need to be clear about you being the owner. That means that your name needs to be affiliated with those expenses & activities that demonstrate ownership. Your contract also needs to be clear about the percentage of the monthly RENT that goes toward the purchase price. Have a well structured option agreement because you do not want renters that are slicker than you misinterpreting the purpose of the "option fee". It should clearly state that the "fee" provides them with the opportunity to perform with certain benefits - nothing more, provided they take action within the time limit specified in the contract.
Of course, before your deal is structured, you need to calculate your expenses and the rent roll you need to cover those expenses- the point is to make sure that you are using other people's money to achieve the objective. Good luck.
If your tenant buyer refuses to do the repairs, you as the landlord are responsible for repairs to keep the unit safe and habitable. You can hold the carrot of the option over their head to try and get your tenant buyer to be responsible for the repairs, but when push comes to shove you are the landlord. If the window breaks (through no fault of the tenant) and the tenant refuses to fix it, the courts would say it is the responsibility of the landlord to repair the window.
Bg is correct. We can call their agreement to perform these repairs part of their contractual obligations and consideration for the Option, but there is still a Lease involved, which bounds us to Landlord-Tenant Law as Landlords.
[addsig]
I just L/O a property my self, as the leasee. 2 yr with the purchase amount $20000 below FMV. With only a $1500 option it was a good deal. A 20 year old house its been a rental the last ten years, it is tired but in good shape. Part of my lease is that I am responsible for ALL repairs on the property. Having done 2 reno's thus far that is not such a big deal. the furnace & water heater are both 2 yrs old everything else is just replacing tired parts. The best part is should disaster strike and the house require huge thousand dollar repairs, I could just walk away because at the end of the day, until i purchase that place, ITS NOT MINE. Now with $20,000 grand in sweat equity I probably wouldn't.
My point is until it is sold it is your house. Be willing to repair the + $200 or $300 stuff because it shows you care about the property.
The guy I'm buying from put in a new $700 canal pump, cause the old one was wearing out, not broken, just wearing out. He's vested, I'm vested.
:-D