Rent to Buy / Lease Option Contract Questions

From: Steve Digby

Can anybody answer the following questions for me

1) With a rent to buy or lease buy option do you have to take the contract to the Office of State Revenue to get it stamped to make it legal and hence have to pay duty on the lease part when the option may or may not be taken up?

2) Is it worthwhile taking out Landlord insurance when you have a rent to buy contract?

Thanks in advance
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Reply: 1
From: Nigel W

On 8/6/02 12:50:00 PM, Steve Digby wrote:
>Can anybody answer the
>following questions for me
>1) With a rent to buy or lease
>buy option do you have to take
>the contract to the Office of
>State Revenue to get it
>stamped to make it legal and
>hence have to pay duty on the
>lease part when the option may
>or may not be taken up?

Hi Steve

There's different ways of structuring these things and the stamp duty consequences will differ, depending upon the approach taken. Also, the timeframes within which documents must be stamped differ from state to state...bloody federal system

You should talk to your lawyer about this and get some advice. To help you firm up in your mind the concepts and questions to ask I make the following observations.

1) you need to figure out whether you are doing a lease with an option to purchase or a long term instalment contract.

2) In the former, there are generally exceptions for residential leases from stamp duty (but check your state and that there's no exception for longer term leases). The option to purchase will probably be dutiable - but the quantum of duty should be based on the option premium which is usually some lesser amount rather than the strike price at which the party may buy the property. if the option is exercised there will be stamp duty on the contract of sale as per usual.

3) in the instalment contract scenario - this would be dutiable just like any other contract for sale of property. The duty will based on the purchase price (putting to one side arguments about whether this is the full market value as in a wrap scenario it should be a mark up from market).

>2) Is it worthwhile taking out
>Landlord insurance when you
>have a rent to buy contract?

This is an interesting issue. Not being a wrapper I can't speak for what market practice is (never did like MC Hammer ;^). It's a risk management call for you to make. Personally I would tend towards yes in the lease/option scenario. In the instalment sale/wrap scenario I'm not sure that you'd get out of the box insurance. BUT in either case you should remember that insurance contracts are uberrimae fidei (which is lawyer speak for "of the utmost good faith"). What that means is that you have a DUTY to disclose those things which would make the insurer think twice about giving you cover.

Whether the existence of the option, or when using an instalment contract that the person is a buyer rather than a tenant, should be disclosed is a difficult question. I tend to think yes in both cases. I don't see how either would detrimentally impact the risk profile - but then insurance companies aren't always logical.

Maybe in the instalment contract scenario both seller and wrap buyer should have their own home and contents insurance? or a joint policy for their respective rights and interests? I imagine getting this square peg through a round insurance hole may be problematic. perhaps an ins. broker could assist? I suspect Steve McKnight or Rick Otton would have some practical answers for this issue...they each have websites: and I think.

Just some random ramblings - get some professional advice.

Good luck
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Reply: 1.1.1
From: Paul Zagoridis

I know a few wrappers in Qld.

Some were overjoyed to get insurance coverage on their houses under installment contracts.

Unfortunately malicious damage by the tenant/buyer was specifically excluded. Kinda defeats the point really, who is most likely to trash the place?

I haven't had difficulty getting insurance with NSW lease/options. But then again mine were normal leases with a separate purchase contract. And none have been exercised.

WealthEsteem :: Psychology of the Deal
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