L ‘ rent with redemption is back at the center of the real estate scene through Decree Unlock Italy, which has restored the canons and operation.
It is an interesting option, as long as the parties obviously agree, for those who want to buy and cannot take out a mortgage for the moment; obviously this is not the only advantage offered by rents with redemption, which are also present in our system with different formulas (rent to buy, buy to rent).
Tajarat will talk about it together in today’s guide, to present you one of the most interesting options if you do not have the possibility or desire to buy a house with a mortgage and still cannot afford, at least for the moment, to buy in cash.
What is rent with redemption?
Rent with redemption meaning: let’s start from the beginning!
Rent with redemption is an option.
Before proceeding to explain the school definition of this type of contract, Team of mivida want to talk with you about its essence.
With the rent with redemption we will have a monthly fee to be paid divided into two parts:
- the real rent, which we would pay to stay in any type of house
- a surcharge, which instead will constitute the advance in the hands of the owner in view of a possible future purchase
Rent with redemption how it works
The operation of rent with redemption is by no means as complex as one might imagine. On the contrary! It is an option that only needs a lot of attention and therefore collecting all the information you need is essential.
Let’s see how the rent with ransom works!
Specifically, we are therefore paying our right to exercise an option, or the right to buy the house at the agreed price, also reducing the money we paid as a premium.
The discipline of the rent to own contract
The regulations currently in force in Italy can be traced back to Slocan Italia, a journalistic formula with which reference is made to Legislative Decree 12/09/2014 which intervened to regulate a contractual category in detail, also establishing other forms of purchase without a mortgage (the financial lease or leasing for the first home).
According to the new legislation, the rental contract with redemption would actually be a shop consisting of two different contracts, which have an independent life and are to be considered completely separate:
- on the one hand there is the normal lease agreement, which acts like a normal lease agreement and has a life of its own
- on the other hand, a preliminary agreement with a purchase option, which being an option, the tenant also has the rightnot to exercise
This means that by law:
- the lease contract does not depend on the exercise of the purchase option
- that itis not mandatory for the tenant to fulfill his promise
It is therefore not a normal preliminary purchase, but rather a contract that provides for the possibility for those who will live as a tenant in the house to be able to buy the house at the agreed price.
This concerns the standard rental contract with redemption: it is possible, by law and other terms, to create a type of contract that obliges the parties to sign a notarial deed.
The rent of the rent with redemption
Speaking of this purchase / rent formula, it is also necessary to pay a fee. We mentioned at the beginning that you will find yourself having to pay the normal rent at market prices, plus a part of the down payment. Your fee will consist of:
- rental rent: you would have paid it everywhere to occupy and use a property
- an additional sumthat acts as a deposit paid in installments for the purchase
How much is the additional sum? The parties can establish it, even if typically, it ranges from 15% to 50% and given that the law allows it, it is also possible to have higher percentages.
It may be convenient for you to pay a higher additional sum, so as to reach the expiry of the option with the possibility of having a greater accumulated capital and therefore with the need to pay a smaller remaining part.
What must be included in the contracts?
The contracts, as we have said, must be two. For the first you will have to refer to the regulations currently in force for lease contracts. For the second, however, there are other constraints to be respected.
When drawing up the preliminary future sale contract you will need:
- enter a deadline, which by law cannot exceed 10 years
- define the rents, separating the portion of the rent from the surcharge
- how many unpaid fees can cause the termination of the contract (the law requires a minimum of 1/20 of the total fees)
When one of the parties fails to honor the rental agreement
In the event that the tenant, or you tenant, does not respect fundamental parts of the contract up to the point of leading to a termination of the contract, the owner of the property will also be entitled to withhold the additional sum that you had paid for the purpose of advance.
A situation that does not exactly play in favor of the tenant, given that the legal interests are not so attractive and also given the fact that in the event that he is in default, he would not lose only a paltry amount such as the legal interest, but all the amount that has been paid as an advance.
What are the advantages for the tenant / tenant / future buyer with the rent to own contract?
The advantages for you who would like to buy a house but cannot at the moment should already be evident. In fact, you will immediately have the property you are interested in, while paying a rental fee.
In addition, there is the advantage of being able to block the price of the property for as long as is indicated in the contract.
The fact also remains, as we will see later, that you will be entitled to a refund of the amount paid as a deposit for the purchase, in the event that you no longer wish to exercise the purchase option.
The advantage of having time to think (even if you pay dearly, that of the rent) must also be considered during the entire duration of the contract, having the possibility of directing one’s interests towards other properties in the event where more convenient opportunities arise for the purchase of a house that is right for us.
What are the benefits for the seller?
The shop in question must obviously also be advantageous for those who are selling, otherwise there would obviously be no conditions to proceed with this type of contract.
Of hard and pure advantages there is the possibility of being able to withdraw at the price of returning the fee paid as an advance, thus having the possibility of following other paths in the event that the property should be worth more, at the price of the sole legal interest.
The alternative offered by Buy to Rent
The Buy to Rent is an inverted formula, if we want, compared to rent with redemption.
In this case, in fact:
- a deed of sale is made immediately
- the new owner will be immediately placed in possession
- payment will be made with or without advance, in installments
Clauses can be affixed to the contract that render the deed of sale invalid in the event that the new owner misses a certain number of payments, as well as penalties, with the old owner who can withhold the installments, or part of them, which he previously cashed.
What are the advantages for the seller with the Buy to Rent?
In this case, the seller’s advantage lies in immediately cutting down some of the costs associated with the house, over all those of a fiscal nature.
It may also be easier to find a buyer, since large capital will not be needed immediately to buy the house.
What are the advantages for those who buy? Could it be the right formula for you?
The advantages of this type of solution are also important for those who buy:
- there will be no need to take out any mortgage: for those who could have problems of this type, it is one of the best alternatives;
- you come into possession of the property immediately
- you become owners immediately
Should you proceed with the Buy to Rent?
The Buy to Rent is certainly an interesting formula, even if it presents a critical point in the fact that in the event that the new owner does not pay, the old one will have to repossess the property, with a procedure that although faster than eviction, however, it may take some time.
For the rest, it can be an interesting formula, because it allows both the seller to quickly find a buyer, and to those who would like to buy without a mortgage.
However, it remains to be considered that not all owners could agree to receive the payment in trance, while a tenant who would pay in cash or with a mortgage would receive the entire sum in a lump sum.