OCBA - Rent-to-buy schemes

Rent-to-buy schemes

You may consider buying a property under a ‘rent-to-buy scheme'. These schemes are common in the eastern states of Australia and are often promoted at seminars as get-rich-quick schemes. Another term by which they are known is ‘wrapping' but this term is often replaced, during the seminars, with the terminology ‘lease-options'.

Wrapping is when a property is sold by instalments, often over a long period, on a rent-to-buy contract. Buyers targeted by these schemes often do not qualify for loans with home loan providers.

These are high-risk schemes for the buyer, as ownership doesn't pass to you until full settlement has been made. An instalment contract may indicate that you will lose all of the instalment payments you make, before settlement, if you fail to make a payment on time. However, these sorts of contracts are not legally binding in South Australia. Any contract that requires payment of part of the purchase price of property (apart from a deposit) before settlement is void. This means that you could recover any such payments made by taking the matter to Court.

Any contract in which a person has a right or obligation to purchase a property, but also has an obligation to pay rent on the property for more than six months before the purchase is completed, may be voided at the option of the person. That is to say, the person who is paying the rent may choose not to continue with the contract. If the person does this, they may take the matter to Court and recover any rent paid that would be in excess of the fair market rent for the property.

In South Australia, contracts for the purchase of real estate by instalment are not legally binding. Consumer and Business Services is concerned that these practices are emerging in South Australia.

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