Rent to own: how it works and what you need to know

Definition and characteristics of rent to own

Rent to own is a hybrid contract that combines two agreements: one for leasing and one for sale. The tenant lives in the property for an agreed period and, at the end of that time, can decide whether to buy it under the previously agreed conditions.

Among its main features are:

• Exclusive right to purchase: the tenant has priority to buy the property, preventing it from being sold to third parties during the contract period.

• Discount on the final price: part of the rent payments can be deducted from the sale price, turning the rent into a form of savings or investment.

• Time to decide: the tenant can live in the property and get to know the area well before committing to a mortgage or final purchase.

• Progressive access to ownership: this formula allows those who cannot buy immediately, but can in the medium term, to move toward that goal with greater security.

How rent to own works

This type of contract is divided into two parts: lease and sale. Both documents must be clear, detailed, and legally well structured.

Lease contract

This agreement establishes the rental conditions, such as:

• Monthly payments: defines the amount the tenant will pay each month. A portion of this amount may later be deducted from the purchase price.

• Rental duration: generally between 1 and 3 years. This is the time the tenant has to decide whether or not to buy.

• Usage conditions: maintenance obligations, deposit, or rent updates.

Purchase contract

Specifies the conditions under which the tenant may buy the property at the end of the rental period. It is signed in parallel and establishes:

• Sale price of the property: fixed from the start, avoiding surprises from potential market increases.

• Applicable discounts: details what percentage of the rent will be deducted from the total price.

• Deadline to exercise the purchase option: usually coincides with the end of the lease contract.

It is advisable that both contracts are reviewed by a qualified expert. At Engel & Völkers, our real estate agents help you review all conditions to avoid abusive or unclear clauses.

Rent to own without down payment and between private parties

Rent to own without down payment refers to agreements where no initial premium is required. This is more common in transactions between individuals, although it can also be negotiated with some developers or property owners.

Advantages of not paying a down payment

This type of agreement offers two main benefits:

• Direct access to the property: the tenant can move in immediately without needing significant prior savings.

• Lower initial financial risk: by not making an upfront payment, exposure is reduced if the purchase is not ultimately completed.

Precautions when it’s between private parties

When formalising a rent-to-own contract between individuals, it is important to consider and evaluate the following precautions:

• Greater legal risk: without the involvement of an agency or legal advisor, it’s easier for gaps or contractual errors to appear.

• Lack of formal guarantees: if the contract is not properly drafted, the tenant could lose their right to purchase.

• Objective valuation of the purchase price: it’s essential to agree on a fair, market-aligned price from the start and record it in writing.

Advantages for tenants and landlords in the Spanish real estate market

This model has become an attractive solution for those needing access to housing in an increasingly competitive environment, offering significant benefits for both parties:

For the tenant

• Planned purchase: you can buy the property after testing it in real life, without rushing.

• Accumulated savings: part of the rent is deducted from the final price, turning your monthly payment into an investment.

• Time to obtain financing: allows you to improve your credit profile before applying for a mortgage.

• Price security: the purchase price is agreed upon from the beginning, avoiding surprises if the market rises.

For the owner

• Guaranteed monthly income: start profiting from the property from day one.

• Lower tenant turnover: since the tenant has a purchase option, they tend to take better care of the property.

• Compensation if the purchase doesn’t happen: in many contracts, the initial premium is not refunded if the tenant withdraws.

• Expanded market: attracts buyers who are not yet ready to purchase immediately.

Disadvantages and risks associated with rent to own

While rent to own may seem like an attractive alternative, it presents several drawbacks that are important to consider:

• Higher monthly payments: instalments are usually higher than in a traditional rental, as they include part of the purchase price.

• Risk of losing the investment: if the purchase option is not exercised, the tenant may lose the premium or accumulated discount.

• Fixed price with no room for future negotiation: if prices drop, you are still obliged to pay the initially agreed amount.

• Potential legal conflicts: poorly drafted contracts may lead to disputes over deadlines, discounts, or conditions.

• Shared maintenance responsibility: it’s common for the tenant to assume more obligations than in a traditional rental.

Legal and regulatory aspects of rent to own

This model is governed by Spain’s Urban Leasing Law (LAU) and the Spanish Civil Code. It’s essential that all conditions are clearly reflected in both contracts.

Regarding the lease contract, it must include all the clauses established by the LAU:

• Duration of the lease and possible extensions.

• Monthly price and payment conditions.

• Usage and maintenance rights.

• Update clauses and security deposit.

Meanwhile, the purchase contract is governed by the Civil Code and must establish:

• Final sale price of the property.

• Amount to be deducted from rent paid.

• Deadline to exercise the purchase option.

• Possible penalties in case of breach.

At the slightest doubt, it’s advisable to seek legal advice. At Engel & Völkers, we help you ensure that all clauses are clear, complete, and compliant with the law.

Process for formalising a rent-to-own contract

Formalising a rent-to-own agreement involves several key steps to ensure that the arrangement is clear and legally valid. These steps include:

1. Searching for the right property: filter properties that offer this model, assessing conditions based on location and market price.

2. Negotiation with the owner: define the monthly rent, purchase price, term, and whether an initial premium applies.

3. Drafting the contracts: both must be well structured, specifying key points such as the purchase price, rent deductions, and responsibilities of each party.

4. Signing the documents: review each clause and request signed copies for each party.

5. Start of the rental period: the tenant must fulfil their obligations and care for the property as if it were their own.

6. Final decision: at the end of the contract, the tenant must evaluate whether to exercise the purchase option. It’s essential to have the necessary financing to complete the acquisition, following the step-by-step process to buy a home.

Frequently asked questions about rent to own

What exactly is rent to own?

It’s a formula that allows you to live in a property under a rental agreement, with the possibility of buying it within a set period and at a price agreed from the start.

What are its advantages over traditional renting?

It allows part of the rent to go toward the final purchase price, lets you live in the home before buying, and fixes the price from the beginning.

Do I need to pay a down payment?

It depends on the agreement. In some cases, an initial premium is required, which is deducted from the final price. However, there are also models without a down payment, especially in agreements between individuals.

What happens if I decide not to buy the property in the end?

In most contracts, if you don’t exercise your right to purchase, you lose the initial premium and any amounts accumulated as “rent discounts.” Therefore, it’s important to ensure you can take on the purchase before signing.

How is the purchase price set?

The price is agreed upon from the start and must be stated in the contract. This protects you from potential market increases, but also means that if prices fall, you’ll pay more than the current value.

Can I get a mortgage at the end of the contract?

Yes. In fact, many buyers use the rental period to improve their financial situation and secure better mortgage terms. Also, since part of the price has already been paid through rent, the amount to be financed is usually lower.

Is it legal to sign a rent-to-own agreement between private individuals?

Yes, as long as clear and lawful contracts are signed. However, in agreements between individuals, legal issues are more likely to arise if there’s no professional advice.

What should the contract include to be well protected?

It must specify the rent amount, contract duration, final sale price, deduction amount, deadlines to exercise the purchase option, and any potential penalties.

Can Engel & Völkers help me with this type of operation?

Rent to own is a very useful way to access housing if you need time to decide or improve your financial situation. But it also involves commitments and risks that shouldn’t be underestimated.

At Engel & Völkers, we accompany you throughout the entire process so you can make informed decisions, with legal security and the peace of mind of being supported by experts. Contact your nearest advisor, and we’ll help you determine whether rent to own fits your goals and possibilities.