More and more frequently our office has been told by an owner in response to a demand for payment of their annual or special assessments or to enforce their community’s use restrictions that: “I don’t own that home anymore, I sold it under a lease-purchase agreement.” Until the sale of the home closes, however, a lease-purchase is a lease, plain and simple. Lease-purchase agreements, in and of themselves, do not convey title to the home nor do they release the owner from his or her obligations under the community’s Declaration. The tenant (lease-purchaser) will usually have certain rights and obligations under the Declaration as a tenant or as an occupant; however, these rights and obligations are not equivalent to the rights and obligations of ownership. In addition, the lease-purchase arrangement would be subject to any leasing regulations contained in the community’s governing documents.
Usually people enter into lease-purchase agreements (these agreements have many names, including “lease options,” “options to purchase,” etc.) because they are unable to obtain conventional home financing. Generally, the tenant agrees to lease the home for some specified time period after which a closing will take place and the tenant will purchase the home. The landlord agrees to put a certain percentage of the monthly rent toward the down payment. If the tenant does not make all of the payments until the time of the closing or is unable to close on the date specified, the agreement terminates, the landlord keeps all of the money earmarked for the down payment and either evicts the tenant or renegotiates the agreement.
Regardless of the terms of a lease-purchase agreement, until a deed conveying the home to someone else is recorded, the owner is still the record title owner of the home for purposes of the community’s Declaration. Most Declarations, whether applicable to fee-simple lots or to condominium units, provide that an “Owner” is the record title owner of the home; that is the person or persons (except for a mortgagee) shown on a conveyance deed recorded in the land records of the county in which the property is located. Therefore, where record title has not been transferred, under the Declaration, the lease-purchaser is treated as a tenant and the owner is, well… the owner.
Generally, lease-purchase arrangements are subject to a community association’s leasing regulations contained in the Declaration because those regulations usually define “leasing” broadly as occupancy of a home by any person other than the owner for which the owner received any consideration or benefit, including, but not limited to, a fee, rent, service or gratuity. If applicable, leasing regulations might cap the number of homes allowed under lease at any one time, provide for a minimum lease term, require that leases be in writing and address violations of the community’s rules and regulations by a tenant. Despite the broad definition of “leasing”, leasing provisions might exclude certain situations if there is a special relationship between the owner and lease-purchaser, for instance, allowing occupancy by a roommate of an owner-occupant, occupancy by a member of the owner’s family, occupancy by one or more wards if the home is owned by their legal guardian, or occupancy by one or more beneficiaries of a trust if the home is owned in trust by the trustee.
Lease-purchasers generally cannot exercise rights of membership in the association, but may have rights to use and enjoy common property or recreational amenities serving the community. Similar to the definition of “Owner” in most Declarations, membership in the community association, including the authority to exercise the rights of membership, is usually reserved for the record title owner of a home in the community. On occasion, a Declaration will provide that owners may (or automatically are deemed to) delegate to their tenants the right as members of the association to vote on association matters and hold a position on the board of directors or as an officer of the association. More often, however, the occupant of a home who is not the record title owner, whether a tenant or otherwise, only has privileges to use the recreational facilities and other amenities of the community. Regardless, a lease-purchaser has no greater rights with regard to the association than does any other tenant who is not the record title owner.
Under each community’s Declaration, an owner, not the lease-purchaser, is primarily responsible for paying annual and special association assessments charged against his or her home. Some governing documents may authorize the association to collect those charges from the lease-purchaser in the event the owner fails to pay the charges; however, such authority does not excuse the owner from the initial obligation and does not obligate the association to look to the lessee first, or at all. Regardless, if the association assessments are not paid by either the owner or the tenant, the association will usually have lien rights against the home, placing the issue quite literally at the owner’s door step.
In addition, owners are usually responsible for ensuring that occupants of their home, including lease-purchasers, abide with the provisions of the community’s Declaration, Bylaws and rules and regulations. While many Declarations authorize the association to enforce its governing documents directly against a tenant, they will also provide that the owners are responsible for making their tenants aware of the governing documents and ensuring that the tenants comply with such documents. In fact, if enforcement action against a tenant is not effective, many associations have the authority to charge and collect fines from the owner for the tenant’s violations. Further, if applicable, a community’s leasing regulations may provide that a lease-purchaser’s violation of the Declaration, Bylaws or rules and regulations of the association constitutes a default under the terms of the lease, and may authorize the owner, or in some cases the association if the owner is unwilling, to terminate the lease and evict the lease-purchaser in accordance with Georgia law. Regardless, most Declarations are clear that, in the end, the homeowner is responsible for ensuring that occupants of their home comply with the Declaration, Bylaws and rules and regulations and will remain fully liable for any violations.
In summary, lease-purchase agreements do not transfer title to the home, do not change the rights and responsibilities of the homeowner under a Declaration to ensure that his or her home complies with the community’s governing documents and that the assessments charged against the home are timely paid, and do not afford the lease-purchaser membership in a homeowners association. Rather, when a lease-purchase agreement is entered, under the community’s Declaration, the lease-purchaser should probably be treated as any other non-owner occupant and the owner will be treated as an owner. The bottom line is that a lease-purchase is a rental until a closing occurs and really shouldn’t be looked at as anything else.
This article is intended as a general overview of some of the issues and considerations associated with the treatment of parties to a lease-purchase agreement under a community’s governing documents; however, lease-purchase arrangements are all different, as are each community’s governing documents, and the discussion above will not necessarily apply universally. As such, we would suggest that community associations contact their legal counsel for advice if interested in determining the various rights of the parties to a lease-purchase agreement with regard to the association.