Contract of Lease with Option to Buy

The lessor in a contract of lease who is the owner of the leased property may grant the lessee an option to buy the property leased under certain conditions. For the option to be valid and exercisable by the lessee it must be supported by a consideration separate and distinct from the rent as it is treated as a continuing offer to sell the property by the lessor.

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The lessor in a contract of lease who is the owner of the leased property may grant the lessee an option to buy the property leased under certain conditions. For the option to be valid and exercisable by the lessee it must be supported by a consideration separate and distinct from the rent as it is treated as a continuing offer to sell the property by the lessor. This contract is often use by real estate developers as a marketing strategy by offering installment buyers a “Lease-to-Own” option where the title over the property remains with the developer and the monthly rental treated as installment payment and applied to the selling price at a future time. However, while the contract is essentially one of lease the BIR may nonetheless treat it as an installment sale and applicable taxes shall be imposed on the lessor.

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