Is Rent to Buy Just Another Dodgy Lease Option Scheme?

I listened to a programme on Radio 5 Live a few days ago that investigated how “Property Investor and Guru” Phil Martin had left a couple close to bankruptcy after agreeing a lease option on their property.

In a nutshell he agreed to take an option to buy the property at a future date and pay their mortgage until he bought it. Not only did he fail to make the mortgage payments but he rented the property to a tenant who didn’t pay the rent and can only be evicted through the usual slow legal process!

People sometimes ask me if our Rent to Buy scheme is a “lease option deal” under a different name.

The short answer is no. There are a number of important differences, for example:

• The property owner continues to pay their mortgage themselves, and keep any profit they make from the rent.  In the example on the radio, the owner gave power of attorney to the Investor, effectively giving up control, and losing any benefit from the rental profits.
• The tenant pays rent to the owner and also pays a monthly option fee which builds up their deposit. This is held in a secure Trust account, insured by the ARLA Money Bonded Protection Scheme. It is only released to the tenant when they buy – so they have an ongoing and growing stake in what will in time become their property.
• If for any reason – such as insolvency – the owner can’t sell the property to the tenant, then the accumulated deposit fund is repaid to the tenant. Similarly, if the tenant chooses not to buy, the fund is paid to the owner. This works like a pair of scales, evenly balanced so that it’s in both parties’ interests to proceed as planned, and if either one doesn’t, the scales tip in favour of the other.

Kirsty Allsop of Location, Location, Location fame hit the nail on the head in the programme when she said that Lease Options are as risky as the person doing them. No doubt lots of lease options are being done that benefit everyone, but sadly there’s little control or protection against the unscrupulous. As someone who believes in fairness I feel a lot more comfortable offering a Rent to Buy solution rather than a Lease Option.

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