Whilst it can be argued that a property lease option is a form of assisted sale. What’s the difference between them. But also, which one is right for you and your personal circumstances?
The main difference between a lease option vs assisted sale is the length of the contract. A lease option is much longer and will generally be longer than 12 months. Whereas an an assisted sale is shorter and will generally be less than 12 months. Both of which help you to sell your home quickly.
Now that I’ve explained the differences of these property contracts, lets take a look at a table of differences vs similarities between these two types of contract, as follows:
Lease option vs assisted sale - table of differences and similarities
Lease Option
Assisted Sale
Minimum upfront payment
£1
£1
Contract Term
Usually more than 12 months
Usually less than 12 months
Cost of repairs
Paid by the 'buyer'
Paid by the 'buyer'
Cost of utilities and council tax
Paid by the 'buyer'
Paid by the 'buyer'
Cost of insurance
Paid by the 'buyer'
Paid by the 'buyer'
Mortgage payments
Paid by the 'buyer'
Paid by the 'buyer'
Main purpose
To obtain a quick sale and often times to help the owner achieve a higher sales price.
To assist the sale of a property and to enhance the owners 'profit' on the sale.
One of the main benefits of both lease options and assisted sales is how quickly they can be arranged.
Before any contracts are signed, both the owner of the property and the investor must be happy with each element of the contract. It must be a win win.
For it to be a win for the investor, as the transaction is a business deal it must show a profit. For it to be a win fore the property owner, they need to be happy with how the deal stacks up for them. Each deal is very different and will be separately negotiated.
A lease option is a contract which incorporates two elements. These two elements are a ‘lease‘ and an ‘option‘. Lease option contracts means that a buyer pays you an upfront amount so they have the right to buy your home in the future.
Let’s expand on these in more detail.
The ‘lease‘ element of a lease option contract
A lease is a legal contract which provides for a formal lease between the ‘purchaser‘ and the ‘seller‘ of a house. The lease contract element provides for an agreed amount to be paid on a monthly basis over the term of the contract.
The amount to be paid on a monthly basis is what’s agreed between the ‘buyer‘ and the ‘seller‘ of the property. In most cases the monthly payment amount is at least equal to the monthly mortgage payments on the property.
A lease contract of this nature can be used in both residential and commercial property in the UK. But for the purposes of this article, I’m going to focus on residential property.
The ‘option‘ part of the lease option contract
An option contract is something that’s been around since the dawn of property law in the UK.
Whilst options are more commonly used in commercial property transactions, in this article I’m only going to focus on residential property in the UK. But having said that, the same principles apply if you own a commercial property too.
An ‘option‘ gives you the right to purchase property. The option fee is paid for as part of a contract. For an ‘option contract‘ to be legally binding, an option fee must be paid upfront. This option fee can be as low as £1 or as much as both parties to the option contract agree.
This is where the idea of buying a property for £1 comes from, as it’s possible to enter into a legally binding property option contract for just £1. You may be wondering why someone would agree to an option fee of just £1.
There are reasons for it, but the option fee is only a part of the option contract. Before the property can change ownership, the final option contract price needs to change hands. This is called exercising the option, (see below).
Option needs to be exercised for the property to be purchased
In order for the property to be ultimately purchased by the ‘buyer‘, the option contract must be “exercised“.
The “exercise” of the option normally requires notice and payment of the final contract price, which would have been agreed at the beginning of signing the option contract.
The combining of two elements into a lease option
A lease option is quite simply a contract which combines an ‘option‘ with a ‘lease‘ into one contract. Which put simply means that the ‘option‘ affords the buyer ‘control’ over the property until such time as they want to exercise the option, whilst the ‘lease‘ provides for an amount to be paid by the buyer to the seller during the option term.
As already mentioned, all the terms of the lease option are agreed up front by both parties. A lease option will not go ahead unless is works for both the ‘seller‘ of the property and the ‘buyer‘ of the property.
The lease option contract is always drawn up by a solicitor and both sides must have representation by a solicitor. Not all solicitors are familiar with lease options, so in order for this to work, it’s necessary to find a solicitor who is experienced in lease options.
Be aware of solicitors or financial advisers who unnecessarily disregard options as a scam or otherwise. Lease options entered into with the right investor are perfectly safe, above board and legal.
If you work with a reputable person, lease options provide a way for you to sell your property quickly in circumstances where this would not be the case.
But just in case you’re wondering are lease options legal in the UK, yes they are legal.
With an Assisted Sale, and depending on the deal that works best for you and the assisted sale company, you’ll have a guaranteed sale price for your house. You may also have an immediately payment of upfront cash for some or all of equity in your house.
But there are two distinct types of assisted sale. The first assisted sale includes an upfront advance of cash. Whereas the second type of assisted sale doesn’t, although having said that, it does require a minimum £1 upfront option fee.
Usually, the advance cash assisted sale option works best for home owners who haven’t yet moved out of their home. But who are trying to sell their house and can’t for whatever the reason.
The advanced cash with this type of assisted sale is required for the deposit on their new house purchase.
However, the alternative assisted sale where there’s no upfront advance of cash (except for the £1 option fee), is better suited where you’ve already moved out to alternative accommodation.
This type of assisted sale works really well with a probate sale. It usually means you’ll receive more money for your inherited property than you would do otherwise.
Quite often probate houses get sold to builders and developers. As such, and in order for a profit to be made by the builder or developer, they need to take account of the cost of the extra 3% Stamp Duty they have to pay in the UK.
Whereas with an assisted sale, the assisted sale company doesn’t have to pay the extra 3% Stamp Duty. That means this can be taken out of the calculation of the purchase price. This alone can make a significant difference to how much you receive for selling a property you’ve inherited.
For example, the extra 3% Stamp Duty on a property that’s worth £250,000 is £7,500. But if the property is worth £500,000, that’s an extra £15,000 cash in your pocket!
What’s the catch of an assisted sale?
The only slight downside to an assisted sale is you my have to wait a bit longer for your money. But with the way interest rates are today, where could you earn the equivalent of 3% on your money. And that’s if you have to wait 12 months.
But if the final sale goes through in less than 12 months, and let’s say it’s just 6 months, this is the equivalent of 6% return on your money.
Additional benefit of extra cash from a share of the profits
The other consideration to take account of with this type of assisted sale without a advance cash, is that you stand to gain a share of the uplift in value from the ultimate sale.
With an assisted sale the assisted sale company will have reduced finance costs involved. With reduced costs comes the possibility of enhanced profits. Because of this they are happy to share the profit made on the difference between the agreed sale price the final sale price with you.
The profit is calculated by deducting the costs to update, modernise and restore or extend your house, together with legal costs and estate agent selling fees
If you have a mortgage on your house, this is taken over by the assisted sale company, with the permission from your lender. Plus the assisted sale company will pay all your bills whilst waiting for your property to be sold.
If you have a property that you’re finding it difficult to sell and you’re interested in finding out more about either a lease option or an assisted sales, please contact us.
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Lease Option vs Assisted Sale (What’s The Difference?)
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Article written by Russell Bowyer who has been investing in property since purchasing his first commercial property in the 1990's for his own Chartered Accountancy business. But his first property investment project was to turn an old dilapidated restaurant into a large 5-bed home, which he purchased for £117,500 and sold for £450,000 (to see an "after" photo of the house before it was sold see here: About). Russell owns a number of investment properties, which includes houses, flats and HMO's. More recently he has turned his creative side to investing in property using lease options. His largest lease option deal to date was to acquire 12 properties worth over £2 million for just £12, which means he paid just £1 to acquire each property!
