Rent to buy can be an option to purchase a home when you are not in a position to borrow from a bank and purchase on the open market. However, there
are several issues that vendors and purchasers should consider.
Securing the Purchaser’s Occupancy
The purchaser has a beneficial interest in the property, which gives them a right to caveat the title to the property. A caveat is a notice to the
Registrar not to register any instruments against the title without the consent of the caveator and ensures that the vendor cannot sell the property
to another person. Purchasers should consider registering a caveat against the property once the agreement is signed. A caveat does not prevent
a mortgagee sale.
Payments of rent vs purchase price
Usually, the purchaser will be paying rent as well as the purchase price. The agreement should be clear about what amounts are being paid for each
category.
Transfer of Ownership
It is unlikely that the entire purchase price will be paid before the vendor transfers title to the purchaser, as it could take decades to fully pay
the purchase price (41.67 years at $300.00 a week for a $650,000.00 property). Instead, once the purchaser has built up enough equity to be able
to obtain a bank loan, the agreement will provide for the balance of the purchase price to be payable. The parties should consider whether the
balance should be payable upon a fixed date or after one party gives notice to the other. Factors to consider include the likelihood of bank lending
available (the business cycle usually lasts about ten years in New Zealand), the time it will take to extract funds from KiwiSaver (usually but
not...
