A New Lease On Life
Wednesday, May 25, 2016
Orlando REALTOR® | MayJune 2016
Lease-purchase can be an idea solution under certain circumstances, but is strays from the path of a normal buyer-seller transaction
By Andrew M. Fisher, JD, MBA
So seller wants to sell and buyer wants to buy, but buyer needs more time to secure financing. Listing agent would like a sale, but, of course, must consider the best interests of the seller.
So in this scenario, how can you get the parties in the transaction to meet their goals? One way is to bring up the idea of a lease with an option to purchase.
Lease-purchase agreements seem to be growing in popularity. I’ve seen six of them come across my desk in just the last month. And while they seem like an ideal solution in certain circumstances, they also pose some risks to the REALTOR® involved.
Lease-purchase agreements stray far from the path of a normal purchase agreement. It’s crucial that you do not negotiate the specific terms of the deal and do not draft the documents, because doing so may lead to the unlicensed practice of law (see sidebar).
In a lease-purchase scenario, the listing agent will need to negotiate with seller whether to get a commission on the lease (remember that there is a residential lease, and that the listing agent likely procured the buyer), and this should be handled in the listing agreement. Also contemplate that if the now-tenant purchases, seller is obligated to pay the real estate commission on the closing of the sale and purchase.
The Supreme Court of Florida permits real estate licensees to fill in the blanks of existing forms contained in TransactionDesk or Forms Simplicity, but NOT to add additional terms, cross out preprinted language, or explain the legal significance of terms. The best course of action is to provide the basic information then refer your client to an attorney to finalize the deal.
In a lease-purchase agreement scenario, the seller needs some comfort that taking the house off the market; remaining responsible for the mortgage; and becoming a landlord may be worth the process. One way to structure this type of deal consists of an option-to-purchase agreement, including a typical residential lease along with a draft purchase contract. There is a buyer-paid, initial non-refundable option fee to secure the option, a monthly rental payment (not related to option, only the actual rental of the home), and a lease-option non-refundable monthly fee.
The buyer agrees to these option fees firstly because they want to buy the house but just need a little more time to secure financing. Secondly, they agree to the option fees because the deal is typically structured so that when the buyer exercises their option to purchase, the initial lease-option and monthly lease-option fees will be credited to the buyer as a downpayment on the purchase price at closing.
With a proper lease option, the seller gets to sell the property soon, and gets paid the initial and monthly non-refundable option fees. If buyer exercises the lease option, seller is ultimately selling the home. If buyer does not exercise the option to purchase, the seller has likely been fairly compensated for the delay in the sale.
Andrew M. Fisher, JD, MBA, Fisher Law, is a frequent ORRA instructor. He can be reached at fisherlawpa.com.
Walk The Line
Contracts and the Unlicensed Practice of Law
The unlicensed practice of law (UPL) concept was established by the Supreme Court of Florida to protect the public. It’s also a concept that frequently trips up real estate licensees.
The court has held that a real estate licensee should be restricted in the drafting of papers to those such as a memorandum or deposit receipt. Generally, if a licensee is simply filling in the blanks on forms contained in TransactionDesk or Forms Simplicity, then there should not be any UPL issues. The potential for problem arises when a licensee writes in additional terms, crosses out or changes preprinted language, or, as we’ll discuss in depth later, explains the legal significance of certain terms contained in a contract or other form.
Licensees will most likely not be found guilty of UPL if cross-outs or changes pertain specifically to a fact. For example, changing the numbers of days to perform an inspection or writing in a disclosure that the seller is a licensee (which is required under the Code of Ethics), should be fine. However, drafting language about back-up offers or writing kick-out clauses regarding below-price appraisals are examples of actions that would most likely be considered UPL. The good news is that most of the issues commonly addressed in handwriting by licensees are contained in Florida REALTORS®/Florida Comprehensive riders. Use them!
There are two specific areas of potential UPL to be aware of when you are preparing contract documents and presenting them to clients: oral communications and the filling in of blanks.
Rule 10-2.1(a)(1) of the Rules Regulating The Florida Bar states, "It shall not constitute the unlicensed practice of law for a nonlawyer to engage in limited oral communications to assist a person in the completion of blanks on a legal form approved by the Supreme Court of Florida.” It further states, "Oral communications by nonlawyers are restricted to those communications reasonably necessary to elicit factual information to complete the blanks on the form and to inform the person how to file the form.”
The moral of the story here is that it is okay to help your clients fill in the blanks and to discuss the facts, but you need to leave interpretation of the terms of the contract to your clients themselves or advise them to contact a real estate attorney for further understanding or clarification.
Keep in mind that an enforceable contract is one that contains the material terms of the deal. This detail is important because if a contract (or rider) is only partially completed or contains blank fields, whether or not the contract is enforceable will depend on the missing fields and whether such fields are considered material to the deal (i.e. purchase price, closing date, or legal description). I recommend that you carefully and properly fill in all blanks on a contract, especially those blanks that do not contain a default (such as a time period to perform).
--By Andrew Fisher