Lease Option SAFE Act / Dodd - Frank Compliant?

[Account Closed]

Hello,

I want to do a lease option with someone who will not be living on the property (already has a primary home) and will use the property for agriculture. From what I have read, if I don't apply any rents towards the purchase price and/or do not set the selling price in the lease, I should be compliant. I have never done a lease option and don't plan on doing anymore. What am I missing? I plan on working with a real estate focused lawyer from my state but trying to be as informed as possible. Thank you for your time.

- Joe

[Bill Gulley]

@Account Closed

If you have acreage leased for agricultural use that is a commercial venture and the SAFE Act along with Dodd-Frank won't apply. If there is a home on the property who will be living there? It depends too on how much land is involved if we can really call this a commercial loan. You can grow a lot of peppers on 5 or 10 acres, but if that is a common land area for the value of that house, it could be viewed as growing peppers in the yard as a hobby farm rather than a commercial venture. This can be a point to justify to stay away from legal requirements as we are selling to an end user/owner.

Since this is your first and probably last (you never know) we can walk you through this deal, it is a bit more complicated than a home in a subdivision due to the excess land and commercial flavor.

First, we need to understand what we have here.

Joe, did you suggest the lease-option or did the tenant-buyer? The lease-option may or may not be the best way to go, if that's what the buyer wants then we won't rock the boat.

Do you own the place free and clear or is there a mortgage on the property? If there is an existing loan, what kind of loan is it?

What is the value of the home with three acres? (*Issue, if the property has a septic system, is there a minimum requirement as to land area required for that system, it can range from a residential lot to 3 or 5 acres, so what we are looking for is the "excess land" amount not required for the home).

Is the entire parcel, home and land under one legal description and deed or have there been or is there separate legal descriptions involved in the property?

These deals need some reverse engineering to be successful. You need to look at the conventional financing options available to the buyer at the end of the option to set the deal up so that financing requirements will be met.

Then, after you set aside the home and the area necessary for the home, what is the value of the land and how many acres do we have?

How long is the term of this deal, when is closing expected?

Any idea of the sale price and what is offered or available for the down payment?

Sorry for all the questions, but you need to design the deal to avoid future issues.

@Brian Gibbons thanks for the mention on this one. :)