As the property market and economic conditions improve, sitting tenants in rented accommodation should seriously consider getting an "option to buy' clause added to their rental agreements.
So says Colleen Gray, MD of CENTURY 21 South Africa, who adds that the suggestion makes considerable sense where tenants aspire to ownership of the flat, townhouse or cluster unit they are leasing.
"Economic uncertainties have obliged many to hold back on their property plans. However, with business conditions improving and consumer confidence much improved, tenants who aspire to home ownership may very well find that now is the time to bid for the very property they currently rent.
"This of course makes a number of assumptions. First, that the tenant does indeed wish to own this particular home. Second, that the landlord is willing to insert an option to buy into the rental agreement and thirdly that the conditions and time frame of the clause are mutually acceptable."
Gray also cautions that both parties should be aware that once they both sign an option to buy, it becomes a contractual agreement that cannot be changed except by entering into another agreement that supersedes or modifies it.
"Tenants also need to remember that properties in this country are generally bought 'voetstoots' or as is. So apart from being sure you are keen to own the property, you should consider how any defects could influence your decision to exercise your option or might influence the price you are willing to pay. There will be no landlord on hand to fix things once you are the owner of the property."
She says there are numerous other aspects involved in option-to-buy contracts as in any property transaction, and that professional help is always advisable. "The key factor in this scenario is that you do get first option on a property that you like, and that you can gain time to assemble a deposit and plan your finances."
Dexter Leite, rental manager for Pam Golding Properties' (PGP) Western Cape region, says this option can be effectuated by adding it as a special or additional condition to the lease, legally correctly drafted, with due regard to all aspects related to the possible sale.
However, he says it is rare for tenants to include "options to buy" in a lease agreement and their intention is usually not to buy the property at the rental stage, because the focus is primarily on the rental.
"Options also confer 'real rights' on the person holding the option and the lessor/owner would be binding himself to a price which the tenant may take up at some future date. During this period, the owner is generally precluded from selling the property to another party, so he is 'restricted' and in our experience reluctant to do this.
Leite said such arrangement is indeed advisable if the tenant is serious about purchasing the property. "It also hinges on whether he can negotiate and be satisfied with a price determined upfront for a future possible purchase of the property. However, the owner needs to agree to this and is generally reluctant to.
He says more common are "rights to first refusals" granted by some owners instead of "options". "These are looser and more flexible and don't require the owner/seller to commit upfront to a future selling price or date." – Eugene Brink
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