If you’re looking to get a foot on the property ladder, there are plenty of options you can consider — even without a deposit or a perfect credit score. Rent-to-buy or rent-to-own is quickly becoming a popular choice for aspiring homeowners.
These schemes are leasing arrangements that allow you to rent a property for an agreed period of time with additional payments. At the end of a set period, you have the chance to buy the home. This could potentially be your path to homeownership, so we’ve put together a helpful guide on the legal aspects of a rent-to-buy agreement.
Is rent to buy legal in South Africa?
Yes, rent-to-buy agreements are legal in South Africa. According to Meyer de Waal, MDW INC Attorneys, since as early as 1981, Instalment Sales were introduced through the Alienation of Land Act, no 68/1981. This set the backdrop for agreements where purchasers and sellers could create an agreement where the purchaser could pay off the price and interest over a period of time.
When to consider a rent-to-buy agreement
With buyers facing challenging circumstances such as rising interest rates, increasing cost of living expenses, and economic uncertainty, rent-to-buy is fast becoming a desirable option. Entering an agreement can give you the freedom to improve your credit score while investing sums of money towards the final purchase price of your home.
You may even qualify for a home loan or have an acceptable credit score. But, if you feel hesitant or wary of signing up for a long-term commitment, rent-to-buy gives you another opportunity to buy your dream home without the expectations that come with a loan. Plus, you’ll be able to secure the property price at today's values and defer the transfer until you have raised the required amount.
How the rent-to-buy process works
Because there is much at risk for both the tenant and landlord, it’s important each side is aware of the ins and outs of the process. While the process can vary per agreement, there are basic aspects that remain constant:
- The buyer and seller sign a lease agreement. The lease agreement allows the renter the option to buy at a later stage and needs to comply with the Rental Housing Act.
- The landlord will charge an additional fee (usually 1-5%) called an “option fee”. This is a percentage of the home’s purchase price that guarantees the renter the option to purchase the home in the future, once the lease expires. All or part of the option fee amount, depending on the agreement, will act as a deposit towards paying the property at the end of the rental period.
- During the rent-to-buy lease period, the title to the house remains with the landlord until the tenant exercises their right to purchase the property. However, unless otherwise stipulated, the owner will not be able to sell the property until the end of the lease agreement.
- The renter will be responsible for ongoing maintenance of the property during the rent-to-own lease period. The agreement should provide details on what the tenant and landlord are respectively responsible for.
- When the rent-to-buy lease agreement term ends, the renter will have the option to buy the home. There is no obligation to do so but the renter will forfeit the option fee funds paid towards the deposit.
In order for the process to go smoothly, it’s important that the renter and landlord sign a rent-to-buy agreement that clearly outlines all the terms and conditions for a successful lease and future sale.
Unpacking the rent-to-buy contract
As there’s a lot at stake, it’s important that the renter and landlord go through the rent-to-buy agreement terms carefully. This will outline details on:
- Those signing the contract
- Payment terms for the monthly rent and option fee
- The process for exercising an option to purchase
- The property
- The rental period
- The deposit
- Tenant/landlord responsibilities
- Insurance and damages
- Cancellation of the lease agreement
As you can see, the rent-to-buy lease agreement is more or less the same as a standard rental lease agreement with additional terms and conditions for the rent-to-buy process.
Unpacking the rent-to-buy contract
- Evaluate the terms: The lease-purchase agreement, like any contract, has terms and conditions you should read carefully. You don’t want to be put in a position where you will be unable to buy the property and forfeit the deposit drawn from your option fee.
- Inspect the home: As the property will become your future asset, it’s important you take stock of what you will be potentially purchasing. Have the property inspected before you move in for any major defects.
- Seek advice from an expert: A property practitioner will be able to explain your contract and your obligations. They will even negotiate the terms on your behalf so you can get the best deal possible. t-to-buy contracts can require you to do additional maintenance of the property. While you would have to do this with a home loan property, you won’t have the additional rental costs to worry about.
Make rent-to-buy your story
A home is an investment in your family’s well-being and should definitely be at the top of your list. Rent-to-buy is the opportunity to get the keys to the home you want. With Seeff’s help, you can make it a reality. Contact our property professionals to find out what rent-to-buy options are available in your area.
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