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Beware - Home Mechanical Lease Contracts

Can rental/lease contracts affect the sale price of your home?

Is it smart to rent or lease my home mechanical equipment and appliances?

This is a question many homeowners are considering these days. Rather than taking on the substantial replacement costs for appliances, furnaces, AC units and hot water heaters, some are choosing to rent or lease instead. 

A good realtor should make you aware that anything in the home with a rent or lease agreement can be a concern because most buyers will want to include these items in the purchase. Unfortunately, what often happens is the homeowner has not read or fully understood all the fine print in the rental contract, and although the buyer may fall in love with your home, the rental agreement on any appliances or mechanical equipment may pose a problem.

Make sure you don't get caught in a bad rent or lease situation.

Let me tell you about a recent encounter I had, which many of you will be familiar with.

On a recent Saturday afternoon, my doorbell rang and on my doorstep was a smiling, neatly dressed young man. An ID badge on his lapel told me who he was and who he was working for. Neither meant anything to me.

He proceeded to ask me about my water heater and then told me he was here to replace my existing one with a new, high efficiency unit. I just needed to sign up now to take advantage of his employer's amazing, low-cost offer. I could not get a word in as he continued his sales pitch, all the while holding a contract and pen in front of me. 

Some history. I live in an 8-year old house and already have a high efficiency gas hot water heater that is working just fine. It is a rental unit, through my gas supplier, costing $25.00 a month and included in that price, they take care of any repairs or replacement if necessary. Why should I switch suppliers and replace my current unit? Well, according to this fellow, the builder likely installed a second-hand unit in my brand new house. And, it was also likely that an illegal exhaust was used. Really?

Needless to say, I did not fall for his pitch and sent him on his way. Just a kid, out to do his job, trying to earn a buck. He likely had no idea of the contents of the contract or how many of them are binding homeowners into long term arrangements that they may not be able to get out of... ever.

These sales pitches sound like good deals on the surface and many homeowners are buying into them. Would you fall for this pitch? How about your parents or other seniors that you know? More and more we are seeing elderly homeowners getting hooked into these deals, without any consultation or second opinion on the contract, and regretting it later. They sign the contract not knowing the terms or implications they may have to deal with when it comes time to sell their home. 

All homeowners should be aware: if there is any kind of rental or lease unit to be included in the sale of your home, you do not own it so any contract for the sale of the home must spell out what happens to the water heater and other appliances. If the buyer does not want to assume the rental, you will likely have to buy it from the rental company or remove it. 

When listing a property for sale, a knowledgeable Realtor will always ask to see your lease contract for your water heater and all other rent or lease agreements. When purchasing a property, a knowledgeable Realtor will ask to see the contract for the water heater and all other rent/lease equipment in the home before you sign any agreement that says you will assume the payments.

As we see more rent/lease equipment in homes, the cost for a buyer to assume them can run into several hundred dollars per month, on top of mortgages, utility costs, taxes, etc. This means that based on the added costs of rental equipment some buyers simply will not qualify to buy your home. 

If you do find a purchaser willing to assume your rent/lease agreement, what happens if they fail to make the payments?  If you signed the original document, the rent/lease company could hold you liable. It works this way with car leases. 

No seller should contract to rent/lease any equipment unless they are prepared, or willing, to take it with them when they move. No buyer should contract to purchase a house with rental/lease items in the home without knowing and agreeing to the terms of the contract for the equipment.

Also remember that a buyer will include specific items they expect to be left in the house.  These are called Chattels or Fixtures.  Rental equipment are not chattels, yet they may be fastened to and part of the homes water supply system making them a fixture, which should stay with the home.  These issues must be sorted out in the transaction paper work. 

Regardless of who your rental/lease company is, ask for a copy of the agreement, keep it handy and show it to your Realtor upon listing your home. Don't assume that because it only costs $25.00 per month it is a good agreement.  You may be surprised at what you find. You may even discover that due to the favourable terms with your rent/lease equipment or the fact you own rather than rent, that you have an advantage over other sellers. And that is definitely something you and your realtor should be aware of.

Note: These rent/lease contracts may not be illegal, but they can lock you into a legal and binding agreement which you later wish you had not signed, should you want to sell.  Do not sign these door-to-door contracts, or any other rental/lease contracts, until you read, understand and accept the terms completely.  Get a legal opinion if you have to. Legal advice now could cost you far less than later when you want to sell. We still live in a buyer beware society, and it's up to you to protect yourself.


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