Lease with Option to Ownership
As is widely recognized, one of the main concerns of people today is securing housing and achieving home ownership despite high property prices and limited financial capacity. Given the generally low level of income and insufficient capital, a lease with an option to purchase constitutes a lawful and valid agreement that enables individuals to become homeowners. This contract, which is a form of lease, is widely used and has, in recent years, been applied extensively in both personal and commercial ownership contexts. In a lease with an option to purchase agreement, the parties enter into a lease with the intention that, upon expiration of the lease term and payment of the final installment, ownership of the leased property will be transferred to the tenant.
Concept and Definition of Lease with Option to Ownership
For many people, the concept of a lease with an option to ownership contract remains unfamiliar. In essence, this contract is a type of lease and, like other lease agreements, is governed by the Civil Code. In such contracts, the lessor, the lessee, the leased property, and the rent amount are specified in the same manner as in ordinary lease agreements. The distinguishing feature is that the lease is concluded on the condition that, upon expiration of the lease term and payment of the final rent payment or installment, the lessee becomes the owner of the property. In this type of contract, the rent is treated as consideration for the property, and the transfer of ownership to the lessee is strictly dependent upon compliance with the contractual conditions and full payment of the final installment.
Is a Lease with Option to Ownership Different from an Ordinary Lease?
Yes, these two contracts differ in several respects. The fundamental difference is the presence of a contractual provision that permits the lessee to acquire ownership. In other words, the price of the leased property is divided into installments, each of which is paid to the owner as monthly rent. Until all installments are paid and the lease term is completed, the property remains in the ownership of the lessor. If the lessee pays all installments and properly fulfills the contractual obligations, ownership of the property will then be transferred to the lessee.
Can a Lease with Option to Ownership Be Concluded Between Natural Persons?
This contract may also be concluded between natural persons, and there is no legal prohibition in this regard. However, in practice, it is more commonly concluded that at least one party is a legal entity. Typically, legal entities, such as large private companies or governmental institutions, are among the contracting parties. For example, car leasing companies and banks frequently enter into such agreements.
Termination of a Lease with Option to Ownership Contract
A lease with an option to ownership contract may terminate in several ways, including the following:
- When the lease term ends, all installments have been paid, and ownership of the leased property is transferred to the lessee, in which case the contract is concluded.
- When the lease term ends, but the lessee has failed to fulfill contractual obligations, the lessor is entitled to recover the leased property.
- When either the lessor or the lessee terminates the contract before the end of the lease term in accordance with legal or contractual grounds.
The Development of the Legal Approach to This Type of Lease
The formal recognition of this type of contract is relatively recent. Prior to the Islamic Revolution, this concept was not addressed, and neither classical jurisprudence nor earlier legal sources had expressly discussed it. The lease with option to ownership was first introduced in the executive regulations approved by the Money and Credit Council in 1361. It was subsequently recognized in the Law on Usury Free Banking Operations in 1362. For the first time, Article 57 of the regulation on banking facilities and the regulations of Chapter Three of the Usury Free Banking Operations Law, approved in 1362, provided a legal explanation of this type of contract.
Article 466 of the Civil Code defines lease agreements. Because the nature of a lease with an option to ownership is fundamentally that of a lease, it is also governed by the general rules applicable to lease contracts.
Frequently Asked Questions About Lease with Option to Ownership
A lease with an option to purchase is a lease agreement in which the parties agree that, upon expiration of the lease term and payment of the final installment of rent, ownership of the leased property will be transferred to the lessee. This contract enables gradual acquisition of ownership by the lessee.
Yes. The main difference is the existence of a contractual condition under which ownership is transferred to the lessee. Until all installments are paid, the property remains in the ownership of the lessor.
Yes. This contract may be concluded between natural persons, although it is more commonly used where one of the parties is a legal entity, such as banks or leasing companies that provide installment based purchase facilities.
The contract may end in three main ways: 1. Upon expiration of the lease term and full payment of installments, resulting in transfer of ownership to the lessee. 2. Upon expiration of the lease term without fulfillment of payment obligations, in which case the lessor may recover the property. 3. Upon termination of the contract by either party before the end of the lease term in accordance with law or contractual provisions.
This type of contract was first introduced in the executive regulations of the Money and Credit Council in 1361 and was later recognized in the Usury Free Banking Operations Law of 1362. Article 466 of the Civil Code defines lease contracts, and lease with option to ownership is governed by the general rules of lease agreements. What is a lease with an option to ownership?
Is a lease with an option to ownership different from an ordinary lease?
Can a lease with an option to ownership be concluded between natural persons?
When does a lease with an option to ownership contract terminate?
How has the law evolved regarding a lease with an option to ownership?
