A lease-option agreement is a popular alternative to the traditional purchase and sale of real property. The agreement typically includes components of a lease, with an option for the tenant to later purchase the property. The tenant usually pays an upfront “option fee” towards the purchase price of the property. During the lease term, title to the property remains with the landlord until the tenant exercises its option and pays the balance of the purchase price. When the tenant properly exercises the option, the landlord becomes obligated to sell the property to the tenant.

There are serious issues to consider when using “rent-to-own” contracts. For example, if a default or breach occurs, many landlords think that evicting the tenant is a proper remedy. However, a common question is whether the tenant has equitable title or the right to attain ownership of the property. In Florida, if the tenant has an equitable interest in the property, the contract may be treated as a mortgage and subject to the rules of foreclosure (rather than a basic eviction).

Section 697.01(1) of the Florida Statutes provides that “[a]ll conveyances, obligations conditioned or defeasible, bills of sale or other instruments of writing conveying or selling property, either real or personal, for the purpose or with the intention of securing the payment of money, whether such instrument be from the debtor to the creditor or from the debtor to some third person in trust for the creditor, shall be deemed and held mortgages, and shall be subject to the same rules of foreclosure and to the same regulations, restraints and forms as are prescribed in relation to mortgages.”

In addition, section 83.42(2) states that the Florida Residential Landlord and Tenant Act does not apply to “[o]ccupancy under a contract of sale of a dwelling unit or the property of which it is a part in which the buyer has paid at least 12 months' rent or in which the buyer has paid at least 1 month's rent and a deposit of at least 5 percent of the purchase price of the property.” Accordingly, when title is in issue, a landlord must show that the tenant did not satisfy the statutory requirements for exclusion from the eviction process.

Moral of the story: think twice before using option contracts. Whether you're considering a lease-option agreement, or wish to bring an eviction action against a tenant, you should consult with competent legal counsel to protect your best interests.