Rent to buy, option with tenant benefits Legal

Ana and Gabriel have little savings to buy a chalet for 200,000 euros, so they have chosen a rental contract to buy the option. Upon signing, they paid a premium of 20,000 euros and for four years paid a monthly rent of 1,000 euros, above market price. In exercising the purchase option, the owner has discounted 68,000 euros of the premium and rent.

Faced with banks’ reluctance to grant mortgages, high real estate prices, Euribor threatening significant increases and buyers not having sufficient capital to enter a home, renting the purchase option is presented as an advantageous opportunity, to especially among them. the youngest.

The purchase option agreement gives the tenant the exclusive power to decide whether or not to make the sale within a certain period and under certain conditions. In addition, you know in advance – when signing the rental contract – the price specified for the future acquisition and the term for exercising the purchase option.

In this way, the tenant is living in a rented house (usually paying a higher rent) for as long as the right to purchase has been agreed (usually between three and four years). The rent is governed by Urban Leasing Law and the owner is obliged to keep the contract and not to assign, rent or sell the house to third parties during his term. At the end of the term, or before its term, the tenant has the right to buy the house at the price set out in the contract.

This type of contract is called a mixed contract, consisting of two subcontracts: the letting of the property for a specified period of time – with a rent charged at the CPI – and the option to purchase it, with a sale price. fixed by the signature. The main beneficiary of this contract is the tenant. The future buyer would save the rental money at the same time he uses the house.

However, fixing the purchase price in the initial contract is a double – edged sword because if the value of the house falls, a higher sum will be paid and it can be a benefit if prices rise, as they do today. But the tenant always has the choice to exercise the purchase or not.

By paying for the house where you live, it is much easier to demonstrate solvency when applying for a loan. In addition, the mortgage to reduce the acquisition of the property is reduced by discounting all or part of the rent from the final price.

Benefits and risks

What is the benefit to the homeowner? Adequate maintenance of the dwelling and higher rent collection are ensured during the rent months as if the tenant does not pay, the purchase option would lapse.

On the other hand, the tenant usually pays an initial premium – a type of deposit – for the right to purchase option which is lost if the property is not acquired. If the owner decides not to sell the apartment, they will be obliged to return this amount to the tenant.

The owner can also locate among the clauses that 100% of the rent is deducted from the sale price during the first year and a lower percentage from the second, which is usually between 80 or 60% of the rental price.

Through this type of rent, the future buyer only has to pay the purchase option premium when the contract is signed, “which is usually 10% of the purchase price and the remaining price is amortized. buy and sell with payment of the contract. agreed monthly rental payments ”, states Alejandro Fuentes-Lojo Rius, a partner of Fuentes Lojo Lawyers. For the lawyer, when the purchase option is finally exercised, “it will be much easier to access the necessary bank financing to be able to pay the rest of the pending price.”

While the tenant is the main beneficiary of this legal business, for the seller it is also an attractive contractual formula. Fuentes-Lojo states that the owner “receives the amount of the premium in advance and collects rent month after month. In addition, if the buyer does not ultimately make the choice, he retains the amount of the premium as consideration ”.

What happens if the rent is exhausted and the purchase option is not in place? The rental contract could be extended beyond the established time, but another contract should be drafted, as the conditions already signed would change.

The main risk for the seller is that the future buyer does not pay the rent, as legal action would have to be taken to evict him, which could lead to “too much being caught”, Fuentes-Lojo admits. The problem is that the right to option would remain valid unless there was a final judgment to resolve the lease.

Risks and benefits of taxation

Since Arriaga Partners they emphasize that, on receipt from a promoter or company, the rent of the house is subject to VAT, but “tax between 10% or 4% if it is sheltered housing. If a premium is agreed, it will be subject to tax in addition to the above reduced benefits ”.

Where the seller of the property is an individual, the purchase operation is subject to the payment of Property Transfer Tax (ITP), which is more beneficial than VAT. In Arriaga they remember “the initial premium is also subject to ITP. In addition, if the option is exercised, the ITP will be taxed again ”.

With regard to taxation, José Migué Tabarés, deputy dean of the College of Registrars, recalls that, among individuals, “the ITP in the quota varies depending on the autonomous communities between 6% and 10% and its base is the largest of these amounts, namely that is, the price for composition. the option or 5% of the agreed purchase price ”. The problem, according to DG Taxes, is that this tax is paid on the premium “regardless of whether the purchase option is subsequently exercised or not.”

For the buyer, the disadvantages are fiscal in nature, since he has to pay taxes twice: first for the premium paid in the purchase option, even if he does not buy as a lessee, and then when the sale is formed . However, it has the advantage of being able to access rental assistance in personal income tax by meeting the requirements set by each autonomy.

More protection for the parts

Mortgage Regulation. Article 14 of this rule stipulates that such contracts shall be registered when there is an express agreement between the parties to this effect, specifying the price for acquiring the property and the price of the initial option or premium, as well as a term which cannot be more than four. years. In the lease with the purchase option, the duration of the lease may reach the full term of the lease, but it must expire in the event of an extension, implied or legal, of the lease.

Affidavit. The tenant may, with the intention of expressing a purchase, “by means of a notarial deed, which is usually the most common, or by the form agreed in the private contract, according to lawyer Luis Enrique Garcia , director Garón Abogados. . The spokeswoman for the General Council of Notaries, María Teresa Barea, emphasizes that “the most important thing is to have advice on the civil and fiscal consequences so that the contracting parties know the benefits of forming it in a deed. public, as it guarantees the rule of legality and has executive effect, probationary effect, credit priority and access to the Registry ”.

Property registration. It is recommended that the contract be raised to a public deed and registered in the Property Registry. Without registration, there would be no possibility of exercising the purchase option if the house was transferred to a third party or in the event of an embargo that would undermine the buyer ‘s right. “In other words, when the option is registered in the register, it is protected by acts of the seller or derived from its relationship with third parties”, says José Migué Tabarés, deputy dean of the Association of Registrars.