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Weekend Top Tip – A Fact that 9/10 Investors don’t know about lease options

This entry was posted on Wednesday, December 9th, 2015 by Nigel

Top Tip #1 – Keep the owner/seller on the tenancy agreement for any lease option deal you secure.

The model for most lease options is to have the investor (buyer) positioned between the owner/seller and a tenant with two objectives in mind .

Objective 1–  Achieve continuous cash-flow from the property and target a net annual return on capital investment of 40%+.

Objective 2 – The property increases in value above the sellers agreed fixed purchase period and  the buyer cash’s’ in by exercising the lease option. (We call this the cherry on top)

The plan is great– but this is where 9/10 investors who hold option deal slip up!
9/10 investors will put their own name on the tenancy agreement.

The investor cannot generally sublet the property and rent to the tenant. Legally, only the owner can grant an assured shorthold tenancy (AST) agreement. This is not a real problem if within the terms of lease option the owner appoints the investor as a “manager/agent” who then deals with the tenant and collects the rent on their behalf.


If the option taker did purport to enter into a truly new tenancy agreement with the existing tenant, i.e. in their own name, then such a ‘tenancy’ would be a legal nullity (since the option taker is not the owner) – and also if there is a guarantor the investor would not benefit from the guarantee on the tenancy

You are now within the 1/10 property investors that know this fact when it comes to lease options.
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