Lease Purchase Contracts

The new economical fluctuations are constantly demanding property developers and owners a more extensive range of services that may help potential buyers to fulfill their needs with lower risks.

In regards to this matter, Panama’s real estate market never fluctuates or gets influenced by a trading market such as a real estate bubble as the one occurred in Florida. What this basically means is that the financial condition of a real estate in Panama doesn’t depreciate even though there might be a surplus of unit in the market.

The above mentioned condition has created the opportunity for an old legal contract that provides a significant alternative for developers and real estate brokers, which is the lease purchase contract, currently a very popular option to rent/close properties.

This contract consists of a single agreement that combines a lease agreement with a basic promissory purchase agreement.  A simple definition is: A lessor agrees to rent (normally for 1 to 3 years) a property with an exclusive option for lessee to execute an option of purchase during a certain period of time.

The highlights of this contract are the following:

1. It creates for a certain time an exclusive relation regarding the right to purchase between the owner and lessee
2. During the lease agreement, the parties may negotiate the sale price if the purchase option is accepted. This price could be fixed from the beginning of the lease or established in accordance to market value when the purchase option is executed.
3. The time frame for this contract is not too extensive (1 to 3 years), however, after the purchase option is taken, the promissory buyer will have a very short term to execute the promissory purchase agreement.
4. When the purchase option is exercised, the seller normally acknowledges as “down payment” a percentage of what the lessee (buyer) has already paid in rent.
5. Should lessee not execute the purchase option during the term agreed then the contract is considered as simple lease agreement with no of claims between the parties.

Benefits of Lease with Purchase Option

1. Allows to make a full evaluation of the property and surrounding area without compromising a large amount of money
2. The fact that part of the lease payments are recognized as down payment helps to  the lessee (buyer) achieve the sale price and approval of the mortgage (if its necessary).
3. This contract is an easy way for the owner to sell the property.
4. The contract is subject to registration at the Panamanian property registry office, next to the original title of the property. Consequently, and legally, seller cannot void unilaterally the agreement unless it is an agreed cause.

Lic. Eduardo Achurra.

eachurra@padela.com