As Australian property prices remain some of the most unaffordable in the world, sellers are finding alternate ways to entice buyers into contracts.

Recently, Rent-to-Buy has been one of these methods.  

Generally attractive to buyers without a solid credit or savings history, a lease is entered into with an option to purchase after X amount of years.

The rent payable often far surpasses other similar properties, and the purchase price will also be well above the market value, due to the transferral of ownership taking place many years after the lease and rent-to-buy agreement has been entered into.

There are many legal implications with entering into a rent-to-buy agreement, and often problems will arise.  Due to this, Queensland is one of the few Australian states where rent-to-buy agreements are lawful.

Some consequences that both parties should be aware of when entering into a rent-to-buy scheme may include:

 1.     The title of the property is only transferred once all payments under the option have been made.

Under a rent-to-buy arrangement the ‘purchaser’ does not have any legal right to the property prior to the payment of the full purchase price.

There are common situations where a purchaser may fall a week behind in payments, and as a result forfeit all monies previously paid and the option to purchase.

 2.     If the sellers do not keep up with their mortgage repayments their bank may repossess the property.

Should the vendor’s default in their mortgage over the property, the bank holds the next best interest in the property, and may force the purchaser to vacate the property.   In this situation it is unlikely that the buyer will be reimbursed with any rental payments made for the purchase of the property.

Accordingly, we strongly recommend that if you are considering entering into one of these arrangements, that you obtain independent legal advice so that you can ensure that you are aware of all of the risks associated with such an endeavour.

If you wish to discuss this matter with one of our lawyers, please do not hesitate to contact one of our friendly team members on 07 5630 6888.