Long Term Lease to Own Scenario

Long Term Lease to Own Scenario

The intent of this post is to outline a preliminary vision of a true “lease to own” ownership structure, for the build out of a floor of residential units at the North Dam Mill. We have been approached by several “buyers” with a keen interest in purchasing residential condominium space at the mill complex. As we are about to commence construction of 23 apartments in building # 17 and 17 apartments in building 36, the timing would be appropriate to explore the possibility of drafting a general contract for a lease to own option.

The general scenario is based on the premise that a typical buyer (or lessee) wants a long term commitment to a home at the mill. That same buyer/lessee wants custom built out space. They want an “open canvas” for their own personal designs.
The following is a random abstract of option terms, questions, ideas and concerns related to the forming of the ideal win/win lease or purchase contract:

1. The name of the agreement could be: “North Dam Mill Custom Space Development – Lease / Purchase Option Contract”.

2. Buyer makes a purchase offer (or long term lease offer) for a selected floor area on the 5th floor of building 17.

3. Buyer/lessee and developer negotiate a construction budget based on the approved plans and specifications. Those construction costs, would either be, A. paid for by the buyer in lump sum, or B. the upgrade cost could be amortized over the term of the lease. It is important to note that both developer and buyer need to be cognizant of the future marketability of their home. The developer would reserve the right to review all plans, and approve or deny any perceived “negative to market value” designs.

4. Developer and buyer negotiate a proposed length term of lease to purchase (or not purchase, just lease). The terms of lease or purchase duration would be guided by the needs of the buyer. Maybe a buyer is 2 years from retirement. Maybe they are selling their house in one year. Maybe they are coming into a known source of capital in five years.

5. A deposit or option to purchase price would be negotiated. The deposit (or option fee) would take into account things like term of lease, purchase price, option terms, performance guarantee, etc

6. Out clauses: both buyer and developer would have options to terminate the contract. A buyer’s life plan might change, or buyer might prove to be a delinquent tenant. Termination penalties (usually measured in dollars) would be part of the initial negotiations. A standard of out clause terms needs to be clearly defined. The pure intent of the termination clause would be to protect both buyer/lessee as well as the developer from any financial harm.

7. Common area costs, condo fees, extra fees………..A set of standards would be clearly stated in the contract. These standards would seek to answer questions like: are monthly condo fees determined on the proportional area of owned space? What are the parking rights? What is the ownership association’s reserve capital needs?

8. What is the optioned purchase price? Is it market price based on a first refusal scenario? Is it a fixed purchase based on inflation rates, or real estate trends?

9. Quality control standards: how will buyer and developer warrant and secure to each other that both will maintain the highest possible real estate value in the project?

We have touched on only a few of the issues surrounding the design of a “win/win” contract for long term lease or an ownership scenario at the North Dam Mill.

We are seeking feedback on this issue. We encourage you to make any and all comments. If there is a strong collective will from you to make this happen, then we can find the way to make it happen.

Scott Joslin
Director of Planning and Construction