I advise all sellers that when entering a lease to buy contract they need to understand it's a lease and nothing more. Personally I'e never once see a lease to own covert to a sale. I'm sure some have, bui statistically the likelihood is very low.
In your case the real issue is that your buyer/tenant is preparing to break their lease. I would advise them that should they do so you will notify the credit reporting agencies immediately as well as file a lien against the home their buying for the amount they owe you in rent plus any legal fees you incur. While you're willing to release them from their sales contract they need to settle up with you on the rent in order to be released from the lease without severely negative ramifications. I would suggest to them that they sign a release of the $3000 earnest money in lieu of the rent their obligated to pay you and remind them that you will be inspecting the house once they leave and that you expect it to be neat, and clean and in similar condition to when they first took occupancy and if it's nt that you will be chasing them in small claims court for these expenses.
Usually the Earnest Money would be forfeited if the buyer changes his mind about buying the house prior to closing, so I am not saying you can't keep the Earnest Money. But you likely can't call it rent. If he owes you rent...he owes you rent. If he owes you the Earnest Money...then he owes you both.
Again it depends on your agreement, but that is normally the case. I think if you check with an attorney you will be pleased with the end result. It just is better to double check the basis for not returning the money, as I think you may have that part incorrect. You would not normally be due the Earnest Money for rent issues. You would be due the Earnest Money because the buyer cancelled the purchase and sale agreement and likely agreed to "Forfeiture of Earnest Money" in the event he decided to renege on the contract. Depends who wrote the contract and how it is worded.
FYI the commonly tossed around statistic is that 50% of Lease Purchases fail, though more often because the buyer who couldn't get a mortgage to buy it in the first place...never can.
Lease Option contracts have a very high percentage of failure. Usually the earnest money in the purchase part of the lease purchase is non-refundable. But that totally depends on your specific contract. Deciding how to handle the earnest money is guided by the wording of the purchase and sale agreement part of your contract.
The lease payments are a separate issue. Hopefully you got first and last month lease payments plus a security deposit for the lease portion. Your lease contract will guide your choices here also.
Lease purchase is actually a good seller strategy because if the buyer / lessee decides not to move forward, you have their non-refundable earnest money and / or you still own the property. You can do another lease purchase, you can sell the property, or you can keep it as a long term rental, which is the best way to build wealth. You have lots of choices.
You received lease money for quite a few months and now the market has improved, so it is possibly a better time to sell than it was when you signed the lease. I sell in the Woodinville area and would be happy to meet with you for a no obligation consultation on your specific situation. I also work with investors
You can contact me at my web site, http://www.karenmcknight.com .
NMLS # 6395
Financing Kentucky One Home at a Time
Your initiative to make your home available via a lease to purchase is a very viable option in this environment, however, your safeguards need to be in place from day one, not via the courts and litigation.
From the position you are in, Larry's suggestions will provide you significant leverage for resolution, perhaps not immediate, but in the near future.
Best of success to you,
Annette Lawrence, Broker/Associate
Remax Realtec Group
Based on your reply to Ben, I would guess that the $3000 was the payment for the purchase option, which would be non-refundable and not rent. Rent would be due for the term of the lease and if the option was exercised by the purchaser, the $3000 would then be applied as both earnest money and down payment.
Again, I'm guessing based strictly on how these usually work and without the benefit of the original documents. Without an attorney review of these however all we can do is guess.
A lease to purchase is first and always a lease. If this was strictly a rental and a tenant wanted to exit early, they would be responsible for the remaining term of the lease or until you secured a new tenant. The "purchase" option will depend upon how your contract was prepared and you choose to enforce it. A well written Lease/purchase option would anticipate this and have clear consequences and protections. You probably should start be reviewing the agreement and if you are not sure, have it reviewed by the person who drafted it or an attorney.