Historically, hire-purchase contracts have not been very common in Spain; in fact, they tend to be rejected, especially by landlords.

They are not very common in Spain.

However, given certain circumstances, it can be a very interesting formula for both prospective buyers and sellers. For example, for those who want to buy a property but do not have sufficient savings (either because of their employment situation, the price of the property or the difficulty of obtaining credit), or for those markets in which the stock has stagnated.

If you find yourself in any of the above situations, or simply want to learn more about this type of contract, today in our blog we are going to solve the following question: &what is rent to own and how does it work?

What is rent to own and how does it work?

If you are in any of the above situations, or simply want to learn more about this type of contract, today in our blog we are going to solve the following question: ?what is rent to own and how does it work?

Rent to buy is a type of double or mixed contract made up of two sub-contracts: one of them contains all the conditions corresponding to the rental of the property and the other one contains all the aspects related to the option to buy. Actually, as it is a contract that contains two legal businesses, it has no specific legal regulation, but it is important to know that it is accepted and contemplated in the Mortgage Regulations and in the Law of Urban Leases (LAU). Furthermore, these two contracts will only be linked during the period in which the tenant has the power to exercise the purchase option, and this option will be considered as expired once it is not exercised within the stipulated time.

Now, for the contract to be in force, it is necessary that two essential conditions of the sale appear: the object of the contract and the price. However, it is advisable that all the conditions of both sides, the lease and the purchase, are clearly reflected. Here are some of the clauses, but you can add as many as are of interest to the parties:

Renting contract:

Renting contract:

Renting contract

Period of time in which the tenant can rent the property, always respecting the period of time established by the law in force at the time of formalisation of the contract.
• Period of time in which the tenant may exercise his/her right to purchase
.
• Amount that the tenant must pay monthly, as well as its update and method of payment
• Amount of the deposit and, if applicable, its application to the purchase price if the purchase option is finally exercised
.
• Compensations in favour of the owner in the event that the tenant gives up the rental after the first 6 months
.
• Who is responsible for the community expenses, repairs or refurbishment of the property

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  .

  Buying and selling contract:

  Buying and selling contract:

  Buying and selling contract:

• Intention of sale by the owner of the property, if the tenant shows interest
• Intent of sale by the owner of the property, if the tenant shows interest
• Giving the tenant the right to decide unilaterally whether or not to buy the property
.
• Sales price
• Percentage to be deducted (partially or totally) from the rental instalments in the sale price
• Amount of the option premium to be paid (this being understood as if it were a sale and purchase agreement), as well as the play of the same, i.e., its total or partial loss or refund in the event that the lessee does not exercise the option to purchase
.
• Distribution of the costs and taxes of the future sale and purchase
.

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With regard to the guarantees that this type of contract offers, we can see that both parties obtain benefits. In the case of the tenant, he has the right to live rented in the house for the stipulated time, gaining time to save and to meet the characteristics for the credit; he has exclusivity in the purchase within the established period; and he can get to know the house before buying it and know if it suits his needs. On the owner's side, he has the security of the sale of the house and, if he does not sell it, he receives the totality of the agreed premium, as well as the instalments paid by the tenant up to that moment; he has the house occupied and receives a monthly instalment; and he obtains tax benefits.

In short, if studied correctly, renting with option to buy can be an attractive option for both parties, as the tenant will be investing in a possible purchase, and the landlord has his property for rent generating profitability and with the premium as insurance.