An option contract is a contract that gives the right to one party to enter into a second contract with the other party at a later date. One of the most common forms of option contracts deals with the sale of real estate. In this type of contract, the prospective buyer will be granted an option to purchase the property within a specified period of time. The prospective buyer will pay the seller a sum of money since the seller is, in effect, taking the property off the market during the option period. If the prospective buyer exercises his option during that time, a second contract is entered into regarding the sale of the property. If the option period expires, then neither party has any obligation to the other. The money paid to the seller for the option is retained by the seller.
Agreement to Lease Residential Property with Option to Purchase Agreement made on the (date), between (Name of Prospective Lessor) of (street address, city, state, zip code), referred to herein as Prospective Lessor, and (Name of Prospective Lessee), of (street address, city, state, zip code), referred to herein as Prospective Lessee. Whereas, Prospective Lessor is the owner of real property that will shortly be available for lease. Whereas, Prospective Lessee desires to lease residential property for his personal use. Whereas, the parties desire to establish an agreement to insure a future lease of the residential property described in this Agreement. In consideration of the matters described above and of the mutual benefits and obligations set forth in this Agreement, the parties agree as follows: I. Subject of Lease. Prospective Lessor shall enter into a written lease agreement with Prospective Lessee on or before (date), by which Prospective Lessor shall lease to Prospective Lessee the residential property owned by Prospective Lessor located at (street address, city, state, zip code), for Prospective Lessee and his family to occupy and use as their residence. II. Term of Lease. The premises shall be leased to Prospective Lessee for a period of (number) years from (date). Prospective Lessee shall have the option to renew the lease for (number) additional periods of equal duration, on giving (number) days' written notice to Prospective Lessor of his intent to exercise that option at least (number) days prior to the expiration of the Lease. Any additional extensions of the initial Lease Agreement or any new Lease Agreement shall be at the option of Prospective Lessor. III. Monthly Rental. Prospective Lessee shall pay $___________ per month as the monthly rental for the term of the Lease with the first payment due on or before (date), and subsequent payments on the (number) day of each succeeding month. This rental payment shall be subject to renegotiation by the parties at any time either of the parties exercises the option to renew the Lease under the provisions of any subsequent lease agreement. IV. Taxes and Utilities. A. Prospective Lessor shall be liable for the payment of all real property taxes assessed against the residential premises and shall pay the costs incurred for water and sewer services. B. Prospective Lessee shall be liable for all personal property taxes and all remaining utility charges, including gas, electricity, sanitation, and telephone. V. Repairs. A. Prospective Lessee shall make all repairs on the premises, except where repairs are necessitated by structural damage, after advising Prospective Lessor of the necessity for such repairs. B. Prospective Lessor shall reimburse Prospective Lessee for the costs of all material required by the repairs made by Prospective Lessee. C. Prospective Lessor shall be responsible for making all structural repairs at his own expense. VI. Liquidated Damages. Prospective Lessee shall pay Prospective Lessor $__________ as liquidated damages for the refusal or failure by Prospective Lessee to execute a subsequent lease agreement in accordance with the terms of this Agreement. The parties acknowledge that a failure to execute that lease will result in damages being suffered by Prospective Lessor, the extent of which cannot be estimated or determined. VII. Option to Purchase. A. Prospective Lessee shall have an option to purchase the leased premises for a purchase price of $_____________, payable in cash at closing. This option to purchase shall be exercised by Prospective Lessee by giving (number) days notice in writing to Prospective Lessor. Landlord. Landlord may waive the writing requirement. Closing of the conveyance between Prospective Lessor. Landlord and Prospective Lessee shall take place within (number) days of such notice to purchase. All expenses of the sale, including survey, applicable recording fees, and any other costs generally incurred by a purchaser, shall be paid by Prospective Lessee. Taxes shall be prorated. B. Prospective Lessee has deposited earnest money toward the purchase of the home with Prospective Lessor the amount of $_____________ each month, which amount represents a portion of the monthly rent paid to Prospective Lessor. Prospective Lessor which will be applied toward the purchase price at closing. Prospective Lessee shall exercise due diligence to obtain financing to purchase the home. If Prospective Lessee in good faith is unable to obtain financing then the earnest money shall be returned. If this lease is terminated by Prospective Lessor. Prospective Lessor for reasons other than failure of Prospective Lessee to exercise due diligence to obtain financing, then the earnest money shall be returned to Prospective Lessee. C. Prospective Lessee agrees to purchase the premises by (date). Should Prospective Lessee be unable to close by this date, due to no fault of Prospective Lessee, Prospective Lessor shall exte
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