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option to buy at end of lease?

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  • option to buy at end of lease?

    looking for thoughts/ wording for a lease agreement. I'm looking for a lease on a hunter (either doing/ready to move up to 3' at the local level or with the potential to get there with some work and training). I don't want to pay the big $$ lease fees for a made 3'-3'3'' packer (plus the fun of it for me is bringing the horse along).

    My question is, I'd like to put a clause in my lease contract that I have the option to buy the horse at the end of the lease term- however, I sort of feel like it's not fair for me to pay the horse's expenses for a year, put work and show mileage into it, and then pay say $5000 more to buy the horse at the end of the lease than what it was worth at the beginning of the lease (just for example, not an actual figure).

    So it is reasonable to say in the contract I have the option at the end to buy the horse for, say $10,000, if that is the amount it is worth at the beginning of the contract? Or is that sort of tough cookies for me since I am not willing to purchase the horse outright at the beginning of the contract?

    I can also see from the lessor's standpoint- if they can get $15000 for the horse after the lease is up, why sell to me for $10000.

    Just looking for input! thanks!

  • #2
    Why are you not willing to purchase the horse outright? If you can afford to (I'm assuming, since you want the option) and you enjoy bringing a horse along, why not just buy it and if you don't like it at the end of the year, sell it yourself for the extra $$$ you've added in value?

    I'm assuming you have a reason, but it wasn't clear from your post...
    _________________________

    http://iamthesprinklerbandit.blogspot.com/

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    • #3
      I think it would be reasonable for you and the seller to agree on a purchase price before you sign the lease. Yes, that's what the horse is worth before the "added value" you supply.

      Of course, you and the buyer probably need to work out things like doing a PPE up front. That helps establish the horse's worth and suitability for your purposes.

      You are thinking about making the horse better. What if it gets worse on your watch, say, gets hurt? If your lessor was really interested in selling, he/she may want some strong protection in this kind of agreement.

      Remember that you aren't offering your lessor much. You'll only pay what the horse is worth now, yet want him/her to take the risk that comes with what amounts to a very long trial.
      The armchair saddler
      Politically Pro-Cat

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      • #4
        I've seen lease and lease-to-own scenarios done every which way over the years. So I'm not sure there's a "right" answer so much as an answer that each individual seller/buyer/leasor/lessee has to agree to, and that can be different based on many factors (the horse, the seller, the economy, the situation, etc.). I don't think your proposal falls outside of the bounds of normal lease etiquette, it will just depend on the owner.

        My 2 cents (certainly not worth more than that!) is that you're asking for the advantage at both ends. You don't want to pay more for the well trained horse, and you don't want to buy and take the risk yourself.

        If I were the seller (and obviously, I'm not) I would tell you that I would be willing to take your lease payment and apply it to the purchase price, but that the purchase price would be whatever the horse was worth at the time you decided to buy it. Meaning that (using your numbers) you'd pay $10K now or $15K next year if the horse got better, but I'd take the $3K (or whatever you pay for the lease) off of that $15K. That covers the risk that I'm taking as the seller, in my opinion, though my numbers are assuming that you're paying a lease fee over basic expenses.

        Of course the horses I've leased out have been at the tail end of their careers (i.e. my former big jumpers being leased out to pack around kids), so I've never been in a situation where the horse I'm leasing out would be worth more in the end than the beginning. So maybe I'd have a different opinion if I was doing it with a green horse?

        Now, if I just wanted a horse off of my books I may be perfectly willing to lease you the horse and then sell for an agreed-to-price that's set now. I've seen it done that way plenty of times. There's no way to know without talking to the owner before you put together any sort of a lease document.

        My leases have all had an area included for the option to buy at the end of the lease (even if we both knew I wouldn't be selling) that stated that the lease fee (again, above and beyond basic expenses, so the actual dollars being paid strictly for the lease) would be applied towards the purchase should we agree to transfer the ownership at the end of the lease. I had a dollar figure in for one lease that was an agreed-upon figure on the day we started the lease, but it was a fair asking price for the horse for the long term since the dollars were for his experience, not for his potential.
        __________________________________
        Flying F Sport Horses
        Horses in the NW

        Comment


        • #5
          We have a girl in our barn who did the lease to own thing. She leased it for 6 months with an amount as a down payment and a predetermined amount to be paid at the end of the lease if she wanted to by the horse.

          The rest of the regular lease things applied during the six months, and she did end up buying it at the end. I agree, though, that you can create a lease with whatever wording fits your situation.

          Comment


          • #6
            Well, regardless, the horse owner is the one in the drivers seat on these things. OP can propose whatever she wants but the owner has no obligation to agree.

            My thinking is, if I own a green horse and lease it for a year at a fair rate, I can take it back and market it for fair value at that time. Why should I guess at what it MIGHT be worth and agree to sell it for that if it is less then market????

            Don't forget OP has use of the horse for a year-kind of sounds like she wants a reduced lease rate in return for her skills as a trainer getting it finished as well as a guaranteed sale price????

            And, what if it proves not suited for what is planned or gets hurt? Is OP still willing to buy it at the agreed upon price?
            When opportunity knocks it's wearing overalls and looks like work.

            The horse world. Two people. Three opinions.

            Comment


            • #7
              Talk to an attorney

              I recommend you consult an attorney. There are many what-if scenarios that need to be addressed. What if the horse is injured? Who has emergency medical decision making authority? Will it be insured? Who gets the proceeds? How often can it be shown or jumped? Can it be medicated?

              Furthermore, an option to purchase may not be enforceable if you don't agree on a price up front and include that price in the contract. So, again, I suggest you consult an attorney experienced in drafting equine lease agreements.

              As far as the reasonableness of your proposal, I think it is completely appropriate to agree on a fixed price up front.

              Comment


              • #8
                Originally posted by EG2009 View Post
                looking for thoughts/ wording for a lease agreement. I'm looking for a lease on a hunter (either doing/ready to move up to 3' at the local level or with the potential to get there with some work and training). I don't want to pay the big $$ lease fees for a made 3'-3'3'' packer (plus the fun of it for me is bringing the horse along).

                My question is, I'd like to put a clause in my lease contract that I have the option to buy the horse at the end of the lease term- however, I sort of feel like it's not fair for me to pay the horse's expenses for a year, put work and show mileage into it, and then pay say $5000 more to buy the horse at the end of the lease than what it was worth at the beginning of the lease (just for example, not an actual figure).

                So it is reasonable to say in the contract I have the option at the end to buy the horse for, say $10,000, if that is the amount it is worth at the beginning of the contract? Or is that sort of tough cookies for me since I am not willing to purchase the horse outright at the beginning of the contract?

                I can also see from the lessor's standpoint- if they can get $15000 for the horse after the lease is up, why sell to me for $10000.

                Just looking for input! thanks!
                I think your first proposal - that you have the option at the end to purchase the horse for what it was worth at the commencement of the contract - is reasonable imo.

                A couple years ago I signed a lease on a 7yo WB mare with a ton of potential. Had schooled over jumps (approx. up to 3') and supposedly had a good (training) foundation, had great bloodlines and a ton of potential, but had been sitting in a field the past 6 months. At the time I was looking for a mare to purchase, but the lease with the option of purchase at the end suited me perfect. The lease itself was free and the seller and I agreed upon a purchase price upfront with the understanding I was likely to purchase the mare in the end; the price reflected the mare's current market value (which was in the high 4-figures), though I would obviously be putting a lot of work into the mare over the course of the year-long lease, which would naturally have increased her value. Our contract stipulated that should the mare become unsound or otherwise unusable, I had to purchase her outright (this is where insurance would be beneficial). Also, as in just about any full lease, I was responsible for all the mare's expenses, from vet to feed, board, shoeing, etc.

                I did not follow through with leasing the mare after I found the owner had lied to me as it pertained to something pretty substantial (concerning the mare specifically), but it had nothing to do with the actual contract, which seemed to work well for the both of us (and was actually signed).

                I don't feel the OP is asking any favours here. What she proposed is what I (almost) did. From the seller's perspective, had I decided to purchase at the end, she would have had 12 months of no expenses and essentially it would have been as if she had sold the horse upfront but not received money on it until the expiration of those 12 months. Had I decided not to purchase the mare, she would have benefited from 12 months of no expenses, and an increased value on her mare, who has been in training the past 12 months. I would have benefited either by the use of the mare and/or by having the 12 months to decide yes and save. Works for both sides.

                Really, allowing the seller to establish a purchase price at the expiration of the lease is risky to the potential purchaser - the seller is benefiting by an increase in value off the purchaser's back and has the ability to price the horse absurdly high, outside the purchaser's range, upon completion of the lease. Establishing a purchase price at the start imo is a little fairer/less risky to the involved parties, imo. The purchaser gets a bit of a deal purchasing the horse at a lower value than the horse might be worth at the finish (that's assuming the horse's value does not depreciate for whatever reason, be it training or injury or what!), but they are the reason that value increased in the first place. They (likely) take the risk they have to purchase the horse (insurance!) should the worst happen and the seller is (likely) guaranteed a horse sold or at least (hopefully) an appreciation in value.

                Anyway, it is all about what works best for you and the seller, but what you propose is certainly not outside the norm nor outside proper etiquette

                I highly suggest a PPE upfront though, in addition to insurance coverage somehow between the two of you. On the mare I did actually end up purchasing - a purchase plan we treated as a lease-to-own - she was insured under the seller. Had the mare died, insurance would have paid out to the seller, who would have reimbursed me for any money I had paid thus far toward the purchase price. Had she been injured or unusable in some way, I was still expected to follow through on my purchase.

                Hopefully this and all the above give you some idea of how to piece together a contract that you can take to an attorney for approval
                Last edited by naturalequus; Jun. 13, 2011, 04:08 PM.
                ....horses should be trained in such a way that they not only love their riders, but look forward to the time they are with them.
                ~ Xenophon, 350 B.C.

                Comment


                • #9
                  Below is what my lease contract had in it (original lease ran July 11 2009 - July 10 2010). Definitely consult with an attorney, but this may be a starting point.


                  11. Options
                  A. Lessee has the option to renew this Lease through July 10, 2011 for a Lease payment of $XXXX if a request is made in writing on or before June 10, 2010 , provided, however, the horse is available for Lease.

                  B. Any such exercise of option, if any, shall be confirmed in writing by the parties hereto and dated, and attached hereto. Any option period term shall have the terms and conditions, and agreements herein are hereby included by reference as part of said option set forth therein in attachment.

                  C. In the event Lessor places the horse up for sale, Lessee shall the right of first refusal to purchase said horse within one month of the expiration of said Lease for a price not to exceed $YYYYY, all lease monies paid will be applicable to purchase. During said one month period ending August 10, 2010 Lessee shall be fully bound by all terms and conditions of this Lease.


                  Note, $YYYYY was about 10% higher than the price to buy the horse outright instead of doing a lease.

                  Comment


                  • #10
                    Originally posted by busylady View Post
                    I recommend you consult an attorney. There are many what-if scenarios that need to be addressed. What if the horse is injured? Who has emergency medical decision making authority? Will it be insured? Who gets the proceeds? How often can it be shown or jumped? Can it be medicated?
                    These are excellent questions and should be clearly answered in any lease agreement, regardless of the inclusion of a purchase option.

                    Comment

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