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Why Maryland Hates Rent To Own And Lease Option Agreements – And The Solution

A rent to own or lease option agreement is a contract (or set of contracts) in which a landlord agrees to lease a property to a tenant and sell it to them at a future date. Maryland treats rent to own and lease option agreements the same so whenever you see me mention either of the terms below just know that the rules I am talking about applies to both terms.

Why People Love The Idea of Rent To Own Contracts

Before I get into why Maryland hates rent to own contracts I’ll explain why people love the idea of rent to own contracts. It’s simple really. Many people can’t afford homes or are unable to get a loan, so they have to rent. Instead of just renting and “paying someone else’s mortgage” they would rather put money into something that they can one day own. In a perfect world, the tenant rents the property, saves money, and buys the property during the option period.

Why Maryland Hates The Rent To Own Contracts

Unfortunately, we do not live in a perfect world. If someone cannot afford to purchase a home conventionally, there is a good chance that they cannot afford to purchase a home in a rent to own agreement as well. The consideration for a rent to own agreement could be above average rent, or perhaps for the tenant put down a large deposit. And if a tenant cannot purchase the property during the option period, then that amount of money will be forfeit. In a perfect world the tenant buys the property and ends up the owner. However, in the real world many tenant purchasers are unable to afford the property when it comes time to pay and they end up worse off.

What Maryland Decided To Do About It

Maryland decided to provide a remedy to the above situation in early 2017 by passing House Bill 1173. This bill places a huge burden on landlords/sellers when offering tenant purchasers lease option agreements. Perhaps tenants are seen as victims that were being taken of by the landlord sellers. Now when landlord sellers offer prospective tenant purchasers lease option contracts they must also do the following:

  • Provide The Tenant with an attorney certification that the contract is in fact legal – I suspect that this is a requirement now because many landlord sellers actually lease to tenants using contract that do not comply with Maryland law. In my practice I see it all the time where people use contracts that they found online. I once had to prepare an attorney certification for an out of state investor that was fined by the Consumer Protection Division for contracts that did not comply with State law.
  • This was a wake up call for me. I ended up going back and forth with the Consumer Protection division over a contract that I drafted that they claimed did not comply with Maryland law. I ultimately “gave up” and decided to redraft the contract that they gave me as a sample. They told me that even that contract did not comply with Maryland law! I eventually got it right. But that experience let me know just how easy it is for the Consumer Protection is to pick apart contracts written by the unenlightened.

  • To Post A Bond With The Consumer Protection Division In The Amount of $10,000 – Perhaps Maryland wants those who are offering lease option contracts to have skin in the game or something to lose as well.
  • Submit a copy of the rent to own or lease option agreement to the Consumer Protection Division at least 30 days before the agreement is delivered to the prospective tenant – So they can have ample time to pick it apart before the tenant signs it.

What Happens If A Landlord/Seller does not comply with the rules?

  • The landlord is automatically liable for unfair and deceptive trade practices under Maryland law, which carries substantial trade periods.
  • The contract may be voided at the option of the tenant.

The Solution – Maryland Loves Rent To Own and Lease Option Agreements Drafted by The Pendergraft Firm LLC.

As you can see, Maryland hates rent to own agreements. But she loves lease option agreements drafted and approved by The Pendergraft Firm, LLC.

If you are considering offering lease option agreements to tenants do not hesitate to contact The Pendergraft Firm, LLC. We will be glad to help! We can provide you with an attorney certification, sound legal advice, and a bevy of real estate legal contracts!

Brian
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Brian

Real Estate Attorney at The Pendergraft Firm LLC
Brian Pendergraft is a general real estate attorney.Click here to schedule a consultation.
Brian
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