In some rent to own situations, there will be tenants who don’t pay their rent. In a typical tenant/landlord renting contract the landlord, who purchased the property, has the right to evict the tenant if they don’t pay their monthly rent as well as committing other contract violations. The same goes for if someone has signed a rent to own contract or option to buy agreement.
There are two leases to think about when wanting a rent-to-own home. The Option to Buy agreement and the Rent To Own contract.
Related: Rent to Own vs. Normal Renting
The option to buy lease agreement has two parts; the residential lease and the option to buy the property which they pay for with the option fee. This agreement states you have the option to buy at the end of your lease.
In a rent-to-own contract, it is similar to signing a rent agreement for an apartment. Unlike the option to buy agreement, you have to purchase the home after the time you have been given. If you don’t purchase the home then all the rent you were putting towards it will become obsolete.
With both of these agreements, the landlord technically is the owner of the house. The contracts both state that the tenant must pay every month, and on time, with the rental payment agreed upon or they breach the contract.
As tenants, make sure you read the entire contract before signing.
Reasons for Eviction
In Michigan, landlords have multiple reasons available to evict a tenant. Their tenant paying rent, not on time is the #1 reason. Other reasons include: damage to the property, health hazard, illegal drug activity, violation of lease provision, and even trespassing.
As a tenant, be respectful of the property you are living in. Sure, the home will be yours in the future, but doesn’t that make it more of a reason to take care of it instead of damaging it?
Due to state law, the landlord has to give the tenant a 7 day grace period on deciding if they are going to pay the rent or to accept being evicted. Most landlords have a late fee if their rent is not paid before the end of the month, but some could be more strict than others.
Always check with your landlord on their late rent policy in the written contract.
Lose, Lose Situation
In retrospect, it would obviously be easier for both parties that the tenant pay their rent. For the landlord, evicting is not a walk in the park. To properly evict their tenant they need to present a proper eviction notice, gather up the correct paperwork, and file it with the court. This process can take up from 15 days to a couple of months, depending on if the court can take the case to trial right away or not.
The tenant also does not receive any money back. The one-time option fee that was paid in the option to buy a lease (similar to a deposit) goes to the landlord. The rent that was going towards the mortgage of the home is also kept by the landlord.
Eviction for both parties is time-consuming and money-draining. It would be easier and cheaper for the tenant to pay their rent during the grace period plus the late fee, or just pay their rent on time as expected.
Whether you’re a renter or landlord, it’s important to make sure that the terms in your contract are clear. By signing an option to buy a contract it is crucial to be sure you are aware of what you’re signing before doing so. Eviction is a possible scenario when renting a rent-to-own home instead of buying real estate yourself.
If you’d like to know more about rent-to-own home buying, check out our full guide.