Selling a House in Texas with Lease Options is a Nuanced Process
Selling a house in the state of Texas does not always need to be an outright, simple sales transaction. Still, some people in the market, as either a buyer or seller, wonder if it is even legal to arrange for a rent to own deal for a residential property in this state. The short answer is, yes, but only if you carefully examine the situation and how the applicable statute in Texas could work for it.
It is crucial to bear in mind, however, that these lease options for residential property sales are vigorously regulated and the statutory penalties for incorrectly selling a house on a lease option are severe. You must comply with the statute to the letter of the law.
To be clear at the outset of this examination, a lease option in connection with the purchase of real estate is in layman’s terms a is a rent to own agreement. Be aware that while this scenario is also sometimes called a lease purchase, technically speaking, a lease purchase would be a constructed in a somewhat differ manner.
A lease option may be one agreement or two, but it is necessarily an agreement to lease (rent) a piece of property, with the right (but not the obligation) to buy that property at a certain price and within a certain time frame.
Lease options are governed by the Texas Property Code, Title 2, Chapter 5, Subchapter D, beginning with section 5.061. The title of Subchapter D is “Executory Contract for Conveyance,” which is a fancy way of saying “real estate sales where title (the deed) does not transfer to the buyer right away, but later.” Specifically, the statute states that it does apply to lease options:
Sec. 5.062. APPLICABILITY. (a) … For purposes of this subchapter, and only for the purposes of this subchapter… an option to purchase real property that includes or is combined or executed concurrently with a residential lease agreement, together with the lease, is considered an executory contract for conveyance of real property.
Yet, the statute does not apply to all lease options and some are specifically excluded. There are no statutory restrictions on any of the following lease option transactions:
- any non-residential property (commercial, industrial, etc.); or
- any residential property, unless one of the following people intends to live in the house: the tenant-buyer or the tenant-buyer’s spouse, parent, child, sibling, grandparent, or grandchild (or the spouse of any of these people); or
- any contract that conveys title to the tenant-buyer within 180 days of the execution of the contract.
Of course, most lease options are residential, and most tenant-buyers intend to live in the houses they are buying, and most tenant-buyers need more than six months to exercise their options. So most lease options will be subject to the statute – at least somewhat. That’s the bad news.
The good news is that there are enough loopholes and exceptions in the statute that if you’re careful and smart (and, you know, have a good real estate lawyer), you can sell your house on a lease option safely, profitably, and yes – legally.