Does ROFR qualify as lease option?

Question

Hypothetical scenario: I want to give a tenant right of first refusal (ROFR) on future sale of a house. To further incentivize tenant to take good care of property and pay slightly premium rent, I would also like to give the tenant 25% of property price appreciation when he actually buys the house.

Does any of this fall into lease option restrictions(due on sale clause) by mortgage company? Would such a contract be considered executory?

Obviously, I need to consult a lawyer ( I appreciate referrals in DFW area) but I am wondering if BP can throw some light on this?

Assume I am dealing with good tenants that have great credit and income but would like to rent for few years before they decide to buy or not.

Brian Gibbons · Answer

@Krishna Chava

In TX you need to be careful "helping" any tenant.

Consider selling a free and clear house on a note and Mortg dot or existing first on a wrap

This is a thing as a SAM or shared appreciation mortgage, see a great contract attorney

Krishna Chava · Answer

Brian,

Thanks for the reply. The same website you referred to also mentions(below) that ROFR without a fixed price is not a lease option and therefore not a executory contract.

http://www.lonestarlandlaw.com/Right-of-First.html

I am not looking for creative ways to do lease options. What I want is a way in which tenant and landlord can share future price appreciation of the house. This appreciation is not given and not fixed and there is no option consideration money here. My scheme gives tenant a stake in taking good care of the property and attracts good tenants to the scheme.

I am wondering if I am inadvertently wading into lease option area by doing this. I appreciate your feedback.

Thanks.

Brian Gibbons · Answer

Read about lease options and ROFRs in TEXAS here

http://www.lonestarlandlaw.com/Executory.html