Legal Articles

With the current economic status of South Africa, potential homeowners may be considering the “rent to buy” option.

Although this is a less conventional way of getting into the property market, it may be the only option for some, especially those who need time to build a good credit history or to save for a deposit.

What are Rent to Buy Houses?

Rent to buy, also known as rent to own is a leasing agreement that provides for the rental of a property for an agreed period of time which offers the renter the option to purchase the property at the end of this period.

This is an especially appealing option for younger generations who are unable to qualify for a bond.

In order to qualify for a bond, potential buyers of property need to have enough money saved to put down a deposit.

Although 100% bonds are not unheard of, they are not always achievable, in which case, a rent to buy option is a more accessible option for some individuals.

How Does Rent to Buy Work?

Generally, an upfront option fee must be paid in addition to ongoing option fees which are over and above the monthly rental payments.

These fees accumulate and aim to assist the potential buyer in building up a deposit which may be used at the end of the rental period should they choose to go ahead with the purchase.

As a result, the buyer is faced with a much smaller balance payable on the agreed property value which is especially helpful for young home buyers in South Africa.

However, it’s important to note that, should the renter choose to not proceed with the purchase of the property, these accumulated fees will be forfeited.

The following are terms that the seller and potential buyer will need to agree on:

• The length of the contract

The tenant will be required to sign an initial lease of an agreed period of time. Once the lease period expires, the tenant will then have the option to buy the property. The decision to purchase the property may also be made during the active lease period

• The option fee

The tenant is required to pay a fee which allows them the option to purchase the property. This fee will be determined and agreed upon by both parties and will be forfeited should the purchaser opt out of the purchase at the end of the lease agreement

• The purchase price

Before entering an agreement, the two parties will decide on a purchase price. This involves a market related risk for the seller, which may result in him or her selling the property for less than the actual market value at the time of the official sale. Should the market prices be lower than the agreed price, the buyer has the option to then forfeit the option fee and opt out of the sale

• Rental payments

In some rent to buy contracts, the landlord may agree that the rent paid by the tenant over the duration of the lease may be deducted from the purchase price of the property. This gives the buyer an obvious incentive to proceed with the purchase

Benefits of Rent to Buy Property in South Africa

One of the biggest benefits of the rent to buy option is that the tenant has the opportunity to “test” the home before making the decision to purchase it.

In addition, the landlord may benefit from this option as tenants are more likely to take good care of the property when they could potentially own it in the near future. Should the tenant not go ahead with the purchase, the landlord can remarket the property which has been well-maintained, ensuring they will face little financial loss related to repair.

For more benefits of the rent to buy option for property in South Africa, click here.

Van Deventer & Van Deventer Incorporated – Conveyancing Attorneys South Africa

The rent to buy option may be appealing to many potential purchasers, especially during the uncertain times currently faced due to COVID-19.

However, it’s important that the terms agreed upon between both parties are reasonable and lawful.

For legal assistance with your rent to own property in South Africa, please feel free to contact our attorneys who are providing remote legal assistance during the lockdown period.