Leasing housing with the right to buy is now available in many European countries
That much is clear. What is not entirely clear is this: did their efforts and the new sales scheme revive demand for housing, or, conversely, did some revival of demand lead to the appearance of such offers on the market?
But, one way or another, the buyer wins, because in addition to living in a house they like and being in a favorable position at the time of obtaining a loan, the new scheme allows them, if prices go down, to purchase a completely different property at a lower price. A lease agreement with an option to purchase in an economic downturn, when supply on the real estate market exceeds demand and undue haste in buying a home can lead to losses, is beneficial to the buyer.
It should not be forgotten that such contracts, which oblige the seller to sell at a certain price, within a certain period, and on certain terms, do not impose obligations on the buyer, granting them only the right to purchase. The only things they can lose by "walking away" from the option are the deposit or, in other words, the "premium," as well as the rent paid. However, these are significantly smaller losses compared to what could be lost by completing the transaction under conditions of further price decline.
Sales under the scheme in question began to be implemented in the second half of 2008, when the crisis was escalating and forecasts for the future were bleak. Today, practically all option-to-purchase contracts entered into during that period have been terminated by buyers or are being renegotiated downward in price.
Currently on the market there is housing—similar or of better quality—at prices so low that they allow buyers, by terminating the contract, even sacrificing the option premium and losing the rent paid over several months, to come out ahead.
It would seem that everything is against the seller. But what happens if the market recovers? What penalty will the seller face in that case if they unilaterally refuse to fulfill the contract?
By refusing to sell, the seller will have to return the option premium to the buyer and, in some cases, pay compensation equal to the amount of that premium. But they do not have to return the rent paid. So if demand recovers and prices go up, the minimal compensation amount, along with the rent payments remaining with the seller, may prove a sufficiently strong temptation for them to refuse the sale.
Let us consider possible (and at the same time quite realistic) scenarios using specific examples. Suppose a client bought a two-bedroom apartment in 2008 for 200,000 euros, entering into a lease-to-own (option) agreement for a two-year term. The monthly rent was set at 500 euros, and the premium paid for the option was 5,000 euros. It is perfectly obvious that today such a contract will under no circumstances be executed by the buyer, as they can easily find similar housing on the market at a price just over 150,000 euros. They can calmly afford to "lose" the 12,000 euros in rent paid over two years and the 5,000 euros paid for the option in order to buy a better apartment, and cheaper at that. It is precisely such contracts that are currently being renegotiated downward, as sellers are interested in selling at any cost.
Now suppose that in the case of the same contract, the real estate market behaved differently, i.e., prices went up and in 2012 our apartment will, in all likelihood, cost not 200, but 240 thousand euros. In all probability, under this scenario, the seller, hoping to sell their property much more expensively after some time, will return 5,000 euros (the option premium) to the buyer and, without hesitation, pay 5,000 in damages, especially since the 12,000 euros in rent paid to them, which they used to cover the interest on their loan, will remain with them.
The conclusion from our reasoning is this: when entering into a lease agreement with an option to purchase, one must still not forget caution. This contract is not a panacea. When signs of rising housing prices appear, do not wait for the option exercise date. The best thing to do is to buy the property as soon as possible to avoid encountering attempts by the seller to terminate or renegotiate the contract. If you are about to enter into such a contract at precisely such a moment, it is necessary to pay the closest attention to what penalties are provided for the seller in case of non-fulfillment of the contract terms. In addition, if possible, have the contract notarized and register it in the real estate registry. This will be the best guarantee that you will not lose your money.
Based on materials from "Offshore Express".