lease optioning non subject to

[Kevin Craig]

Could someone tell me if I need 2 pieces of paper to do a lease option without taking the property subject to. I don't want to do a subject to, I want to lock the property up under lease option and then assign it to a tenant buyer. How woulld I do that? Do I need two seperate contracts?

[Jon Holdman]

I think you're wanting to do a sandwich lease option. That is, you lease option a property from a seller then turn around and lease option it to your tenant buyer.

With a lease option one of the concerns is "equitable interest". In theory a lease simply gives you possession of a property, but does not give you any ownership interest. An option, OTOH, does give you some ownership interest. When selling on a lease option, you would use a separate lease that would be identical to a lease you would use for a pure rental. The option would be totally separate. Mixing the two together potentially gives the tenant/buyer an equitable interest, which could turn an eviction into a foreclosure.

When buying you would like to have that equitable interest. So you might want a combination document. Certainly you want language in the lease giving you the right to sublease the property.

So, you would need at least three separate contracts. A combination lease and option between you and the seller and a lease and an option with your buyer.

There's no assignment involved.

There's a lot that can go wrong in a deal like this. The option you're selling gives the buyer of that option the right to buy. That means you have to deliver. Yet you don't actually own the property. If the buyer want's to exercise, and you can't get the seller to actually sell, you'll be stuck. Do a search on "sandwich lease option" and you'll find other comments.