Can I offer my tenant a lease-option or rent-to-own in Texas?
By Andrew ChavisUpdated September 6, 20267 min readYou can, and most single-family landlords should not, because Texas treats it as a sale, not a lease. An option to purchase that is combined with or signed at the same time as a residential lease is, together with the lease, an executory contract for conveyance (Tex. Prop. Code Sec. 5.062(a)(2)), and Subchapter D of Chapter 5 applies unless the deed is due within 180 days (Sec. 5.062(c)). That subchapter requires the seller to own the property in fee simple free of liens for the whole term, with a narrow carve-out for a purchase-money loan disclosed in a separate 14-point notice (Sec. 5.085); to record the contract within 30 days (Sec. 5.076); to hand over a survey, a seller's disclosure notice, a tax certificate, and insurance evidence before signing (Secs. 5.069, 5.070); to send an annual accounting statement every January (Sec. 5.077); and to transfer title within 30 days of the final payment (Sec. 5.079). A seller who violates the title rule is exposed to rescission with a refund of every payment made plus the value of the purchaser's improvements (Sec. 5.085(c)). A landlord with a mortgage on the house is the fact pattern the statute was written against. This is general information, not legal advice; a lease-option is a transaction to run past a real estate attorney, not a lease addendum.
The Word That Changes Everything Is Option
A rent-to-own arrangement feels like a lease with a bonus. Texas law reads it the other way around. For purposes of Subchapter D, an option to purchase real property that includes or is combined or executed concurrently with a residential lease agreement, together with the lease, is considered an executory contract for conveyance of real property (Prop. Code Sec. 5.062(a)(2)). The subchapter applies to property used or to be used as the purchaser's residence, and a lot of an acre or less is presumed residential (Sec. 5.062(a)). The one exit is timing: the subchapter does not apply to a contract that delivers the deed within 180 days of execution (Sec. 5.062(c)). A twelve-month lease with an option at the end is not that. The moment the option is signed alongside the lease, the landlord is a seller under Chapter 5 with a seller's duties, whether or not the tenant ever exercises the option.
Fee Simple, Free of Liens, for the Whole Term
A potential seller may not execute an executory contract if the seller does not own the property in fee simple free from any liens or other encumbrances, and must maintain that clean title for the entire duration of the contract (Sec. 5.085(a), (b)). A mortgage is a lien. The statute allows one: a lien placed before the contract in exchange for a loan used only to purchase the property, and only if, at least three days before signing, the seller gives the purchaser a separate written disclosure naming the lienholder, the loan number and balance, the monthly payment and due date, and, in 14-point type, that the lienholder may foreclose if the seller stops paying (Sec. 5.085(b)(3)). A cash-out refinance, a HELOC, or a second lien does not fit the carve-out. A violation is a deceptive trade practice and entitles the purchaser to cancel and rescind the contract and receive back all payments of any kind made under it, plus reimbursement of taxes the purchaser paid and the value of improvements the purchaser made (Sec. 5.085(c)). On a lease combined with an option, the payments made under the contract can include the rent itself, which is why the refund exposure is counted in years, not months; how a court would split rent from purchase payments on a particular contract is a question for the attorney who drafts it.
The Paper the Seller Has to Deliver Before Signing
Before the purchaser signs, the seller must provide a survey completed within the past year or a plat of a current survey, a legible copy of every document describing an encumbrance or claim on title including restrictive covenants and easements, and a written seller's disclosure notice attached to the contract in the statutory form (Sec. 5.069(a)). The seller must also provide a tax certificate from each taxing unit and a legible copy of the insurance policy or binder showing insurer, insured, property, and amount (Sec. 5.070(a)). Failure to provide the tax and insurance information is a deceptive trade practice actionable under the DTPA (Sec. 5.070(b)). The contract itself must be in writing, signed, and carry a 14-point boldface statement that there are no unwritten oral agreements (Sec. 5.072). None of this is on a standard lease form, and the Texas REALTORS residential lease warns against bolting a purchase option onto it for exactly this reason.
Record It in 30 Days, Account for It Every January
The seller must record the executory contract, with the attached disclosure, on or before the 30th day after execution, and record the termination if it ends (Sec. 5.076(a), (c)); the penalty tracks Sec. 5.079 but is capped at $500 per calendar year of noncompliance (Sec. 5.076(e)). Every January the seller sends an annual statement, postmarked by January 31 if mailed, showing the amount paid, the amount and number of payments remaining, taxes and insurance collected, any insurance proceeds, and the current policy if coverage changed (Sec. 5.077(a), (b)). Miss it and a seller with fewer than two such transactions in twelve months owes $100 per missed statement plus attorney fees; a seller with two or more owes $250 a day for each day after January 31, up to the fair market value of the property, plus fees (Sec. 5.077(c), (d)). Once recorded, the contract is treated as a deed with a vendor's lien, and the seller's remedy on default is foreclosure, not eviction (Sec. 5.079(a), 5.066(a)). Rescission and forfeiture are available only on an unrecorded contract after a 30-day cure notice (Secs. 5.064, 5.065), and an unrecorded contract is already a violation of Sec. 5.076 with its own penalty, so that path starts from noncompliance.
Title Transfer and the Purchaser's Equity
When the purchaser makes the final payment, the seller has 30 days to transfer recorded legal title, with liquidated damages of $250 a day from the 31st through the 90th day and more after that (Sec. 5.079(a), (b)). And once a purchaser has paid 40 percent of the price or the equivalent of 48 monthly payments, or once the contract is recorded, the seller loses forfeiture entirely and must sell the purchaser's interest through a trustee after a 60-day cure notice, with the equity accounted for (Sec. 5.066(a), (b)). The tenant who has paid rent under a lease-option for four years is not a tenant the landlord can simply decline to renew.
Where We Stand
We do not attach purchase options to the leases we manage, and when an owner asks, this page is the reason. A tenant who wants to buy the house is a buyer, and the path is a purchase contract with a title company and a closing date, which is what Sec. 5.062(c) contemplates when it exempts a deed delivered inside 180 days. An owner who wants a long runway to a sale needs a real estate attorney to structure it under Subchapter D on purpose, with the mortgage handled under Sec. 5.085 before anything is signed. What does not work is a lease with an option paragraph typed in at the bottom. The statute reads that paragraph as a sale, and it reads the rent as payments the owner may one day have to give back.
Common Questions
- 01Is a lease with option to purchase an executory contract in Texas?
- Yes. An option to purchase that includes, is combined with, or is executed concurrently with a residential lease is, together with the lease, an executory contract for conveyance (Prop. Code Sec. 5.062(a)(2)), unless the deed is due within 180 days (Sec. 5.062(c)).
- 02Can I do a lease-option on a house that has a mortgage in Texas?
- Only inside the narrow carve-out in Sec. 5.085(b)(3): a purchase-money loan placed before the contract and disclosed to the purchaser in a separate written notice at least three days before signing, with the 14-point foreclosure warning. Any other lien violates Sec. 5.085 and exposes the seller to rescission and a refund of all payments.
- 03What happens if a landlord violates the executory contract rules in Texas?
- Depending on the section: rescission with return of all payments plus improvements (Sec. 5.085(c)); DTPA liability (Secs. 5.070(b), 5.072(e)); $100 per missed annual statement, or $250 a day for a seller with two or more transactions (Sec. 5.077(c), (d)); $250 a day for late title transfer (Sec. 5.079(b)); up to $500 a year for failing to record (Sec. 5.076(e)).
- 04Does a Texas lease-option have to be recorded?
- Yes, within 30 days of execution, with the disclosure notice attached (Sec. 5.076(a)). Once recorded, forfeiture is no longer available and default runs through a trustee's sale after a 60-day cure notice (Sec. 5.066).
- 05Can a landlord evict a rent-to-own tenant in Texas?
- Not the way a landlord evicts a tenant. After recording, or after 40 percent of the price or 48 payments, the purchaser has equity protection and the seller's remedy is a trustee's sale with a 60-day cure period (Sec. 5.066). On an unrecorded contract, rescission or forfeiture requires a 30-day cure notice (Secs. 5.064, 5.065).
- 06What is the safe way to sell a rental to the tenant in Texas?
- A purchase contract with a title company and a closing inside 180 days, which Sec. 5.062(c) exempts from Subchapter D. A longer runway is an executory contract and should be structured by a real estate attorney with the mortgage handled under Sec. 5.085 first.
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