Ohio Land Contract vs. Lease Option

Is my agreement a land contract agreement or a lease with option to purchase agreement?

The issue of whether your legal agreement is a land contract or a lease with option to purchase agreement can come up in various contexts including when you are evicting a tenant or when someone gets hurt on the premises. If you are evicting a tenant, the tenant may try to argue that the lease with option to purchase is really a land contract because if the tenant has made payments for five years or has paid o 20% of the balance of the property then the landlord must resort to foreclosing upon the property and cannot evict a tenant through a typical residential eviction procedure. In other cases a tenant may want to construe a land contract as a lease because the landlord owes the tenant certain duties of care under Ohio Revised Code 5321.04.

Normally you would think that it should be a fairly simple matter to distinguish between a land con- tract and a lease with option to purchase agreement but some grey area does exist. Courts try to first look at the intent of the parties as evidenced by the written agreement. What did the parties intend the agreement to be? In determining that intent, courts look at several factors:

1. the characterization of the document – how is the document titled?

2. the lessee’s rights at the end of the lease term – must the lessee vacate and has no right to owner- ship (lease) or does the lessee obtain ownership at the end of the lease term (land contract);

3. the application of rent to the purchase price – is all the rent applied to the purchase price (land con- tract) or is just a portion of the rent applied to the purchase price (lease with option to buy);

4. the responsibility for payments for repairs, utilities, and taxes – landlord’s responsibility (lease) or tenant’s responsibility (land contract);

5. the nonexistence of a financing statement (lease);

6. whether an option to purchase existed (lease with option to buy).

Courts will also examine other circumstances surrounding the agreement to determine what the par- ties intended. For example, was there a security deposit (typically of one or two months rent) or was there a more substantial deposit given evidencing a down payment? Or was the agreement for a year or less (lease) or for several years (land contract).

Make sure that the terms you negotiate as part of your agreement do not run afoul of the typical char- acteristics of a land contract or lease with option to purchase (depending upon what your intent is) or you may face hurdles you never expected (foreclosure instead of eviction or landlord duties in lieu of seller duties).