Sample Rent-To-Own Contract or Contract of Lease with Option to Purchase (CLOP), Philippine Version

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As promised, I am sharing a sample Rent-To-Own contract specifically for use here in the Philippines. A Rent-To-Own contract is more correctly referred to as a Contract of Lease with Option to Purchase or CLOP.This is similar to lease option contracts used in other countries like the US.

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The sample rent-to-own contract can be found here: http://www.foreclosurephilippines.com/2009/04/19-free-legal-forms-and-contracts-from.html

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About Jay Castillo

Jay is the founder of Foreclosurephilippines.com where he shares real estate investing tips and foreclosed property listings. He quit his job as an I.T. Manager to focus on Real Estate Investing and Internet Marketing. He is a PRC licensed Real Estate Broker (REB License # 3194)... [Read more]

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  • Arkei Quintana

    Hi Jay,

    I’m a newly licensed Real estate broker and I love reading your posts, actually it is in you’re page where I got some of my reviewer and it helped me a lot during the licensure exam. I have browse this topic lately and I know this is much of a request but can you post an advise or any technique you have on how to offer a property for lease to banks or big corporate restaurants like Jollibee or Mcdonalds will be a very big help. Thank you and God Bless.

    Arkei Quintana

  • jd

    a lease purchase contract on a condo unit, does it qualify under the Maceda Law?

    • http://www.foreclosurephilippines.com Jay Castillo

      Hi JD, based on the full text of the Maceda Law, rent-to-own contracts are not covered.

  • Emer Gonzalez

    Hi Jay,

    Assuming I am a commercial lot owner and I decide to lease the same to an interested lessee introduced by a licensed broker. How much commission can the broker charge me? Lease is on a long term basis because the lot is quite big. If for example the monthly lease amounts to say P 3M/mo, can I deviate from the standard in paying the broker for his commission? Thanks

    emer

  • http://blog.joelchua.com Joel Chua

    Hi Jay,

    Thanks for posting this. I’m about to take the real estate broker exam, and the thought of asking this came to mind:

    Do I understand correctly that based on item #7a on the sample CLOP that the lessee cannot hope to accelerate his/her monthly lease and thus own the RTO property even before the maximum term of the lease ends?

    • http://www.foreclosurephilippines.com Jay Castillo

      Hi Joel, first of all, congratulations for passing the real estate board exams!

      As for section 7a, it’s not meant to prevent the tenant-buyer from accelerating payments. It just ensures that if he does pay the NROC and the monthly rentals on time, he can exercise his option to purchase. Excess payments can and should be credited to the principal and this should be added to the CLOP, as long as both parties agree on this.

      Thanks for the question, cheers!

      • http://blog.joelchua.com Joel Chua

        Thanks Jay! (You actually looked up my name on the list ? )

        One thing that I learned from taking our Real Estate classes was that the Maceda Law encompasses residential installment sales.

        So I have a followup question: if a buyer under the RTO contract does
        1. accelerate his/her payments, and
        2. such excess payments are credited to the principal, and
        3. does so for at least 2 years

        It may then qualify the RTO (perhaps in court) as an installment sale and the buyer would then qualify under the Maceda Law to receive those excess payments back if he/she is no longer able to pay. What do you think?

  • Em

    Hi Jay,

    I purchased a condo on a pre-selling and I already paid 2 years for that. The condo will be turned-over in 2011.

    I am just wondering, can I sell my condo unit even if I have not fully paid it yet?

    What are the things that I need to do (other than finding a new buyer)?

    Can I sell it to a new buyer on bank financing, say 15 years?

    Thanks Jay….

    • http://www.foreclosurephilippines.com Jay Castillo

      Hi Em, yes, you should be able to sell by assigning your rights or by having your buyer assume your balance. Bank financing should be no problem as long as the developer agrees and the buyer can qualify for bank financing.

  • dorothy

    hi there could i ask if you know some law in the philippines that saying,you cant own the house or land that you rent for morethan 20 years because my brother ask me to look for it in the internet but i not lucky to find it. can you help me please thank you

  • dorothy

    hi there could i ask if you know some law in the philippines that saying,you cant own the house or land that you rent for morethan 20 years because i’m brother ask me to look for it in the internet but i not lucky to find it. can you help me please thank you

  • Alex

    Jay,

    Thanks for your reply,in regards with my previous question about RTO if I will ask my Tenant for example a 10 or 20% dowm on TCP of 2.2M with 2 yrs term and she did not purchase the house after the contract yung downpayment is forfeited na add ko na lang sa provision on the contract I hope Im getting it right I will check with Atty. but mosty na kilala ko is Notary Public lang and with your experienced ba do most of them end up buying your house on RTO scheme or you end up on diff. situation na your tenant is begging you not to take their DP money and just stay in the house as tenant Thanks again and more power to you.

  • Alex

    HiJay,

    I have a 1 unit townhouse in Las Pinas that is rented since 2007 and I acquired the property using bank loan . My question is how will I proceed on a RTO scheme, much how DP , lenght of payment I have to give to my tenant .Thanks a lot and very informative site god bless.

    • http://www.foreclosurephilippines.com Jay Castillo

      Hi Alex, for starters, you will have to wait for the existing lease contract to expire and then replace it with a new contract of lease with option to purchase. Downpayment would really depend on you but the norm nowadays is from 10% to 20% of the contract price plus option money. Same goes for the loan term. Personally, I would prefer a shorter term as it is less riskier. Let me know if you have further questions.

      Your welcome and God bless you too!

  • busa

    Hi jay! do you have a sample purchase proposal letter? Thank you. Very informative blog!

  • JAY A. VILLAR

    THANKS JAY FOR THE RTO SAMPLE CONTRACT. REALLY APPRECIATE A LOT. THANKS, THANKS, THANKS BRO. GOD BLESS!!

    • http://www.foreclosurephilippines.com Jay Castillo

      Hi Jay, you’re welcome!

  • rene

    Hi Jay,I’m plan to sell my HnL property on Rent to Own basis. Chk with some sites for various schemes. I came across with one that part of the monthly rent ( 25-30% of rent) are applied to form part of Lessee’ equity or down payment. Is this being practice here where the initial cash out is 2mos deposit & 1 month advance?After the 2 to 3year contract the Lessee can opt ot buy the property and have the balance finance by banks, B’cuz most of the real estate ads on Rent to Own are just In house financing in disguise. Thanks and your sites had been great help for amateur like me, God Bless!

    • http://www.foreclosurephilippines.com Jay Castillo

      Hi Rene, not sure how I missed seeing and replying to your comment. Anyway, the scheme you mentioned looks very similar to other schemes I have seen in the past. You can use that scheme as a guide and then tailor fit it to your needs. Actually rent-to-own payment schemes are sometimes structured very similarly to in-house financing schemes. But at the end of the day, they still provide the buyer the ability to pay in lighter monthly payments. Just let me know if you need further clarifications. You’re welcome and thank you also for visiting.

  • Joey

    Hi Jay. thanks for you very win win advice. I have just purchase condo unit in Mandaluyong along Shaw. All our saving went in there. Now I wanted to stop working here in Saudi Arabia and wanted to sell the condo so that I can use the money in real estate investment like you do. Do you think I can sell it now. We are going to inspect the unit on July 7 and already paid the amount. How much do you think I can sell it. I paid PHP2.4 for it. were are at the 14 floor and the space is 30.17 sqr meter.

    Appreciate so much you advice.

    • http://www.foreclosurephilippines.com Jay Castillo

      @Joey, congratulations on your purchase! May I ask the condition of the property and exact address? Would you also know the market values of similar condo units on the same building?

  • mts

    thanks jay for your reply. The foreclosed lot can be acquired thru financing with 20% dp so I would supposed I will just be given a CTS for this transaction. I’m dealing with the bank employee from their asset management dept. It’s a small mortgage and savings bank so I’m not sure if they have accredited brokers. Anyway, thanks for the advice, you are really of help. Need more of your inputs on my other property which remains unsold until now. will pm or email you. -

  • Jay Castillo

    Hi mts, first of all, you would need to get a hold of the property from the bank in writing. If they require a reservation fee to do this, then that would be the way to go. Once you have a hold on the property, that is the time you can safely sell it to your buyer, without the risk of the buyer bypassing you. Are you dealing with someone from the bank directly or from an accredited broker? It would be easier with an accredited broker as they would know how to handle this kind of deal. If the purchase is through a CTS, there is a certain amount of time where you can assign it to the buyer, and the bank should allow that your buyer’s name be the one on the CTS and on the DOAS. You also save on taxes this way as you avoid double taxation as there is only one transfer of ownership. Even if the title has been consolidated, you still need to get the certified true copy from the RD plus trace back. Check the traceback if it has an annotation referring to the foreclosure of the property by the bank.

    • Omigosh

      Hi Jay,
      In this transaction between mts and the bank, will the bank agree to put mts’ price (to his buyer) on the DOAS, then give mts the difference (mts’ price to buyer less bank’s price to mts) in cash? If not, how does mts obtain his profit?
      Also, how much normally is the NROC?
      Thanks for your help.

  • mts

    hi jay! I’m eyeing at a foreclosed lot from a bank with a prospective buyer, I’m planning to flip the property, what should be my first step? The buyer does not know that it is bank foreclosed (title is already consolidated). I was thinking of just paying a reservation fee with the bank to take hold of the property coz I’m afraid the buyer might go directly to the bank and purchase the lot herself leaving me out of the transaction. Will the bank allow that the deed of sale be in the name of the would-be buyer instead of me if he agrees to pay for the property? Is is safe to assume that the title is clean knowing that it has been consolidated in the bank’s name already or do I still need to get a true copy from RD. thanks a lot!

  • HLURB

    jay,

    just to remind every one that there’s law that specify a min. design requirement for buying a residential units (subdivision or condominium) as per PD957.

    you can’t just sell a residential unit without complying to this design requirements. you need also to secure a license to sell from HLURB for selling a property.

    some structural, electrical, plumbing and other elements need to comply with the building code.

    please refer to HLURB for more information

    • http://www.foreclosurephilippines.com Jay Castillo

      Hello HLURB, as far as I understand, we as buyers should just make sure that we buy from reputable developers who should have complied to PD957 along with structural, electrical, plumbing and other requirements of the building code. We are not developers but rather owners and as such we can sell a property we own without the need to secure a license to sell, am I right?

  • Jay Castillo

    @nightwatch, If you’re planning to build new structures, that might be too costly. Ever since I started, no matter what number crunching I did, the numbers for building new apartments did not make any business sense. Thanks for patiently reading my blog, I’m glad you are now seriously considering real estate investing. I’m currently facing a crossroad right now, I’m deciding whether to quit my job and go full time…

  • nightwatch

    Hi Jay, Yes I read that book already. However, I’m wondering how to realy apply it. I’m planning to build a three story structure within two adjacent lots. If I put in two units on each floor, how can I do a rent to own?

    Am now an avid reader of your blog, hoping to follow your footsteps too. Am also an IT professional.

  • Jay Castillo

    @nightwatch, I will be covering the application of the rent-to-own scheme soon which is actually no different to the application to apartments, I just have to make a review of my recent deal so I can make a very detailed post from start to finish. May I please know if you have already read Larry Gamboa’s book “Think Rich Pinoy”?

    @rico, the contract-to-sell I mentioned on my post is between the bank and the investor (seller). This is not connected at all with the rent-to-own contract which is between the investor (seller) and the tenant-buyer. Sorry for the confusion! Just let me know if you need further clarifications.

  • rico

    jay,

    please confirm my understanding on the rent to own scheme between contract to sell agreement;

    assumed principal = loanable balance
    monthly rent = monthly amortization
    nroc/privilege fee = equity / downpayment

  • nightwatch

    how do you do the rent to own scheme on apartments?

  • Jay Castillo

    Hi Rico, yes, as far as I know, the maceda law does not cover rent-to-own contracts. Thanks for dropping by!

  • rico

    hi jay,

    in rent to own contract, this will avoid the seller from maceda law which requires the seller to return some amount to the buyer if he/she will not continue the payment right? bec. the lessee will only have the right to purchase the property after he/she compile and finish the terms and condition stated in the contract.

  • Jay Castillo

    @Joey, Willeus is correct, you can just give 1 month’s rent as commission if the buyer has not exercised his option to purchase. If however the buyer exercised his option to purchase from the start, you might have to give the 5% commission based on the whole contract price, which is usually given when at least 20% has been paid.

    @teamchi, you’re welcome!

    @Willieus, thanks for the reply!

  • Willeus Acuña

    Jay, thanks a bunch on the contract.

    Joey, since this is a RENT-to-own scheme, you can give one-month’s worth of rent as the commission. The commission you are giving the broker is for the lease contract, precisely because the renter may choose not to continue with the purchase.

  • teamchi

    Thanks for posting. This is a big help for us. Stay blessed! :)

  • Joey

    hi jay, good evening. thank you so much for sharing the contract template. really appreciate it. however, i have another concern which I hope i could address to you. You see I tried posting my Citiland Condo unit on a rent-to-own scheme last week. and luckily i received already three (3) potential buyers. But i seem to have a problem on the last one because a broker is involved. Now, I never thought about how much should I give the broker if his buyer is interested in getting my rent-to-own offer. My initial thinking is that I’ll give the broker a 5% commission on the downpayment amount only because i consider the rent-to-own technique to be a conditional/contigent sale. hence there is no assurance yet that the renter/buyer will 100% fulfill his obligation to pay the monthly amortization in 15years. Now i’m not sure if this is the right way to do it? or should I still give the 5% commission based on the original contract price? i’m quite confused.. would really appreciate your kind enlightenment. Many thanks and more power to you. – joey

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