Lease options and rent-to-own homes are great for families who aren't in the market to buy a house.The low down payments make these arrangements attractive to tenants and traditionally, they’re relatively easy to participate in for those who meet the minimum criteria. With the changes to the Texas Property Code (Sec. 5.061 et seq.) in 2005, however, the lease options now define contracts for longer than 6 months as “executory contracts” which are subjected to strict regulations under the Code.
There are many requirements that must be observed, both initial and ongoing, that the landlord/seller must be held accountable for. If they fail to meet the said requirements, they will incur penalties under the Property Code and also might pose as a potential liability for the landlord/seller under the Deceptive Trade Practices– Consumer Protection Act, which can result in damages.
Austin Lease Options: Executory Contract Defined:
An executory contract as defined in Section 5.062(a) (2) of the Property Code: “An option to purchase real property that includes or is combined or executed concurrently with a residential lease agreement, together with the lease, is considered an executory contract for conveyance of real property.”
For lease-options that are for six months or less, there is an exception, otherwise the sales of residential properties that was put into effect by the Texas Real Estate Commission, would have violated this provision if combined with a temporary lease.
The instances that aren’t affected by Section 5.062(a) (2) of the Property Code are options that are not combined with a residential lease and also options on commercial property.
An executory contract includes transactions that postpone an action by either the buyer or the seller that is related to the ownership or possession of real property in the future.
In an executory contract, the seller has the “legal title” of the property while the buyer has an “equitable title” which means that the buyer only has an equitable right to receive the legal title if the agreed upon conditions have been met.