What Is a Lease-Purchase Agreement?

When properly drafted, a lease-purchase agreement creates a binding contract between a renter/prospective buyer and a seller, also known as a “lessee” and “lessor,” respectively. Combining a traditional property rental agreement with a “right of first refusal,” a lease-purchase agreement allows the lessee to effectively rent the property for a brief period of time and then move directly into purchasing the property at the end of the lease term. When the lease-purchase agreement is executed, a sale price for the property is also determined and reflected in the agreement along with other details of the sale, such as the down payment amount. Typically, a portion of the monthly lease payment is credited toward the sale price throughout the lease period.

By way of illustration, imagine that Bob, the lessee, enters into a lease-purchase agreement with Sam, the lessor. The agreement reflects the agreed-upon sale price of $250,000, a down payment of $7,500, and monthly lease payments of $1,200 for a term of 12 months. During the lease term, $300 of the monthly lease payments will be credited toward the downpayment. If Bob makes his monthly lease payments each month for the duration of the lease, he will have accrued $3,600 toward the down payment, leaving only $3,900 needed according to the terms of the agreement. At the end of the 12-month period, the lease agreement automatically becomes a sales agreement using the previously agreed-upon terms found in the lease-purchase agreement.

What Is the Difference between a “Lease with Option” and a Lease-Purchase” Agreement?

Lease with option agreements, also known as “right of first refusal” agreements, are very similar to lease-purchase agreements; however, there is a significant difference. With a lease with option, the lessee/buyer has the option to purchase the property at the end of the lease agreement, whereas with a lease-purchase agreement, the lessee/buyer is obligated to purchase the property at the end of the lease agreement.

Requirements for a Lease Purchase in Georgia

In the State of Georgia, the requirements for creating a valid lease-purchase agreement are governed by Georgia Code § 10-1-682. According to that statute, a lease-purchase agreement must be in writing and include all the following:

• A brief description of the leased property.
• The total amount of any initial payment, including any advance payment, delivery charge, or trade-in allowance to be paid by the lessee.
• The amount and timing of payments.
• The amount of all other charges, individually itemized, which are not included in the periodic payments.
• A statement of the party liable for loss, damage in excess of normal wear and tear, or destruction to the leased property.
• The lessee’s right to reinstate and the amount of any penalty or other charge for reinstatement.
• The party responsible for maintaining or servicing the leased property and a description of this responsibility.
• A statement of conditions allowing termination.
• A statement of the total cost of the lease, using the term “cost of lease.”
• A statement that the lessee has the option to purchase the leased property during the term of the lease-purchase agreement and, at what price, formula, or by what method the price is determined.
• A statement that a manufacturer’s warranty will be passed on to the lessee if any part of it remains at the time of sale.
• The “estimated fair market value of the leased property” at the time it is initially leased.
• The difference between the “total cost of the lease” and the “estimated fair market value of the leased property” using the term “cost of lease services.”

It is equally important to know what terms cannot be included in a lease-purchase agreement in Georgia, such as:

• Requiring a garnishment of wages or a power of attorney to confess a judgment.
• Granting authorization to the lessor to unlawfully enter upon the lessee’s premises.
• Requiring the lessee to waive any defense, counterclaim, or right of action against the lessor.
• Requiring the lessee to agree not to assert against a lessor a claim or defense.
• Requiring any collection or repossession charges in excess of those allowable under Georgia law.
• Providing that the lessee cannot return the leased property to the lessor at the end of any term.

Is a Lease-Purchase Agreement a Good Idea?

A lease-purchase agreement can be an excellent option when both the buyer and seller benefit from the agreement. Typically, this means that the seller intends to sell the property but is not ready to do so yet and the buyer wants to buy the property but is not able to do so yet. In such cases, a lease-purchase agreement can be beneficial for both parties. It is crucial, however, that the agreement be carefully drafted to ensure that it complies with Georgia law.

Speak to an Experienced Georgia Lease-Purchase Agreement Attorney Today

If you are contemplating entering into a lease-purchase agreement in Georgia, contact an experienced Georgia lease-purchase agreement attorney to discuss how we can help you by calling 678-882-0830.