Answer:
It is possible that lease of a property could trigger a due on sale clause. Certainly, a lease/purchase or lease/option could trigger the due on sale. However, the stated perspective that lenders are too busy resolving crisis' right now to be bothered with taking on any new worries over due on sale clauses is probably true in many cases. Notwithstanding, a real estate agent cannot be sure that statement is true in every case and agent cannot give sellers the advice that a due on sale clause can be ignored. To do so, agents would engage in the unauthorized practice of law and if seller's loan is called, the agents unauthorized advice would prove to be incompetent. Accordingly, agents cannot give that advice. However, if a seller wants to consider a lease/purchase or a lease/option, agent should advise seller to seek legal counsel for assistance in determining whether seller's underlying loan would allow that type of sale.

There are numerous potential adverse consequences to a seller arising from a lease/purchase or a lease/option. This answer will highlight only some of them. When agent advises seller to seek legal counsel regarding seller's underlying loan documents, agent should also advise seller to talk to their lawyer about potential risks beyond those just related to seller's underlying loan requirements.

Before analyzing potential risks, it would be valuable to define the terms. The terms may have different meanings to different people but from the Hotline lawyer's perspective, a lease/purchase involves an already executed purchase agreement with a very long closing period during which time the buyer occupies the property and pays rent. Buyer is obligated to purchase but there is always the question of whether buyer will perform.

A lease/option is a situation where a tenant leases a property and also signs an option agreement, typically supported by an option payment. The option agreement secures to tenant the right to purchase the property on the specified terms if tenant chooses to do so within the option period. Tenant is under no obligation to purchase the property and suffers no penalty if tenant chooses not to purchase. The option payment, theoretically, is paid in a lump sum prior to tenant occupying the property and belongs to seller regardless of whether tenant purchases the property or not. The purpose of the option payment is to compensate seller for taking the property off the market while buyer decides whether or not buyer will purchase the property.

In strong buyer markets, that theoretical approach regarding option money often morphs into something far less desirable for seller. Sometimes, instead of a lump sum payment, the rent payment is increased to include an amount that would be considered part of the option payment. Of course, if tenant stops paying rent, then seller never gets the option payment. Sometimes the option payment is considered to be part of buyer's down payment, which means that seller receives no compensation for the time seller's property was off the market, during buyer's option period. The amount and quality of an option payment is something each seller should consider in determining whether seller wants to accept a lease/option.

If seller is not considering renting out their property long term, then it is always risky to put a buyer in the property prior to closing. If the buyer ends up not completing the purchase for any reason, then seller's home is occupied, making it that much more difficult to sell. In addition, it seems that buyers who occupy property with the mindset they are purchasing often take greater liberties to modify the home in ways that may be undesirable to seller, such as bad paint jobs, carpet removal, etc. In other cases, buyers who occupy the property but then are unable to purchase are destructive of the property. Either scenario can occur with any rental property but the mental and financial impact on the seller is very different if seller was never intending to use their home as a rental property. This is a risk that sellers must appreciate before entering a lease/purchase or lease/option.

Additionally, it can be more difficult to get a tenant out of the property if the tenant occupied the property as a prospective buyer rather than purely as a tenant. The process involved in removing the tenant/buyer can be more complicated than a traditional eviction.

If the market value of seller's property increases prior to closing of a lease/purchase or during the option period of a lease/option agreement, then seller is stuck with the lower purchase price. Sellers should take that issue into consideration in determining how long seller will give the buyer to actually perform under either type of agreement.

Finally, if seller sells on a lease/purchase, the commission is due at closing. That would meet the expectations of most sellers. However, if the property sells on a lease/option, the commission is due at the time the lease/option agreement is executed, regardless of whether buyer exercises the option or not. That would not comport with the expectations of most sellers and would be an expense that some sellers are unable to pay if they do not receive a sizeable option payment, upfront.

If seller is seriously considering a lease/purchase or a lease/option, then in addition to advising seller to seek legal counsel, agent may want to encourage seller to consider just doing a simple lease to the buyer instead of combining it with a purchase agreement or an option. In doing that, sellers will understand they are, in fact, leasing their property for a specified time and they don't have false hopes that tenant is going to choose to purchase or close more quickly. If they need to evict tenant for failure to pay rent, the process will not be complicated by tenant's claim that they are purchasing the property. If tenant decides, at the end of the lease term, that tenant wants to purchase the property, buyer and seller can agree then to execute a purchase agreement based on the market value of the property at the time. For the buyer advantages described above, some buyers may be unwilling to go this route. However, sellers should at least be made aware that this is an option.

Of course, if seller simply leases the property rather than selling on a lease/purchase or lease/option, then seller owes no commission. Seller could not choose this route while the listing agreement is still in effect unless seller and listing broker worked out another agreement regarding compensation.

Clearly, a seller's decision to lease/purchase or lease/option their property can be complicated. Sellers should approach these agreements with caution and a full understanding of the associated risks.

Hotline Attorney Annie Fitzsimmons writes the Legal Hotline Question and Answer of the Week.