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Lease to own contract questions

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  • Lease to own contract questions

    I have someone interested in buying a horse from me with payments. We have decided that lease to own is the best situation. horse will remain with me and in my program, and she will basically be half leasing it from me on a monthly basis, and making payments towards his price every 3 months for 15 months. rider is quite novice, so having me part lease out the other half to someone more experienced is win/win I think. She will have use of my tack, blankets and so on.

    I will look after basic vet and farrier. I have limited my financial requirements to look after him if something big happens and he requires considerable vet care to $1000.00, with the clause that the buyer can opt to take over vet bills and put those payments towards his purchase price if they opt to do so.

    I have also addressed if he goes lame/ill due to her negligence, or due to 'no fault'

    I have never done a contract like this, and want to make sure I am covering all bases to protect both of us.

    I am also considering putting mortality insurance on him for the duration of the lease period, so that if horsey dies, the girl can get her already made payments back. Does that make sense?
    Freeing worms from cans everywhere!

  • #2
    Mortality insurance with a detailed payout distribution is a good idea. The lease-to-owner gets a percentage of the payout based on what she has paid. Make sure she realizes that the payout may not be 100% equal to the purchase price, and that she may not see an exact repayment of her total costs on the horse.

    Another thing to address is the timing and method of payment (cash/check/etc.) as well as penalties for default and terms under which the contract can be terminated by either party (if applicable.) One example that is relevant would be if the leasor breaks barn rules repeatedly and is asked to leave...do you have to buy her out of what she's paid? Does she forfeit the amount she has "into" the horse? Would you agree to her continuing the arrangement at another facility? That last one would also apply to cases where she had to relocate for family/work. This term really exists to protect BOTH parties, it prevents the owner from suddenly deciding that the leasor just isn't working out (or selling the horse to the person who shows up with the full purchase price), and booting them from the facility without cause or refund of payments. Not that anything like that EVER happens with horses In the event that the rider is unable to ride for some period of time, can she sell her half-lease back to you? Can she "sub-let" the horse to anyone?

    Another term concerns use of the horse while on payments. Is she allowed to put her mom/boyfriend/sister up on the horse? Is she permitted to take the horse off-property? Under what circumstances? If there is an event planned (ie: clinic) who has priority on the use of this horse, your barn riders or the leasor? If she declines to participate, are you allowed to enter the horse in the event under your rider? A term to protect the leasor here can include that the horse will not be actively advertised during the term of lease, and no riders outside the program lesson students will be on him.

    Who determines the horse's level of soundness and fitness to perform at various levels? I would make it clear if you want the power...that way an iffy moving horse doesn't end up the source of a dispute, where the rider feels he's fit and you disagree. Another way to deal with that is to name a veterinarian whose word would be final to both parties.

    Make sure that your contract details the horse's current care/use schedule, and define how deviations will be addressed. If you want the horse on supplements, who pays? If she wants to change the horse's feed, how does that work? If she wants him booted for lessons, is that all right? If she wants him on indoor board, how does that work? If she wants him in a private pen, how would you work that (let's say that she becomes afraid of a big bay gelding in the field and wants to have her horse in a separate pen to avoid him.)
    Lifestyle coordinator for Zora, Spooky, Wolfgang and Warrior


    • Original Poster

      Are you saying someone could be afraid of Dexter?

      Those are good points. The potential buyers are novice, so I need to make sure I cover all things, without overwhelming them! So much to consider.
      Freeing worms from cans everywhere!


      • #4
        Based on my considerable experience participating in and observing all sorts of lease deals over a lot of years???? Don't do it. Your buyer does not have the money to pay it off for 15 months and is only making a payment every 90 days? And using your tack and stuff? Are they even paying board or are you covering that? Whyever would you think they can afford a big vet bill? Go ahead and half lease her the horse until she can afford to buy it outright but the lease to own deal with infrequent payments and such a long term is a train wreck in waiting. Especially with first time owners who have no earthly idea what it really costs to properly keep and use a horse.
        When opportunity knocks it's wearing overalls and looks like work.

        The horse world. Two people. Three opinions.


        • #5
          I agree with findeight. What stops the person from using the horse for 3 months or 6 months and then walking away? They make a payment every 90 days? What if they use the horse for 89 days and then call it quits. What stops the person from paying monthly? Also, who is paying board (even if you own your own place), is the leasee also paying part board for each month being leased? There are just too many things that could go wrong. All the contracts in the world won't stop things from going wrong either. If the rider can't afford to buy the horse outright can she really afford the care of the horse once she manages to pay it off? Sounds like she can't afford monthly payments so how would she afford monthly board? If you are selling the horse, find a buyer that can pay for the horse cash and you are comfortable with.
          "My treasures do not chink or gleam, they glitter in the sun and neigh at night."


          • #6
            Are you saying someone could be afraid of Dexter?
            I figured he was more likely than Rocket to scare someone...LOL

            Go ahead and half lease her the horse until she can afford to buy it outright but the lease to own deal with infrequent payments and such a long term is a train wreck in waiting
            It's also potentially a good match on a nice horse...and a chance to introduce a novice to ownership in an established lesson program with an experienced instructor. The fact that the would-be owners are even considering a horse in this price range is an excellent sign, instead of making payments, lots of parents just buy a totally unsuitable horse cheaply and stick their kids in 4H in the hopes that the green OTTB will become a good partner.

            The reason to do a lease-to-own is probably largely to protect the buyers' interests. Instead of saving to a bank account and potentially having their leased horse sold out from under them, they maintain increasing financial interest in the horse and get to enjoy the benefits of this nice horse in the mean time. In a regular lease, the owner really can sell the horse at any time, especially with a partial refund of the lease fees. In lease-to-own, that's a lot more sticky, because the lease-to-owner has distinct financial consideration in play toward ownership.

            I hear you that there are potential trainwrecks...so ensuring that both parties are protected takes careful consideration. I think there could be a good opportunity here too. This also begs the question "why were they looking at horses in this price range if they couldn't afford them..." well, that is a good one. Still, sometimes people hear about horses a little before they had planned to be buying, and the timeline gets accelerated. The type of horse in question here is actually very difficult to find, especially at his current price. It's a good opportunity, and if the rider is a good fit, I can see making an arrangement to ensure that the horse ends up in happy hands.

            One other arrangement that is more lopsided (toward the seller) is to set up a regular lease contract with a fixed term, and if the buyers hold up their end of the arrangement, they can buy the horse at the end of the term for a significantly reduced price. That might be easier to manage...if they go for it. I consider it lopsided though, because without the payments on a lease-to-own, I know that I have no real consideration into the horse...if the seller goes crazy and sells the horse, or boots me out of the barn, the money I've spent in the half-lease is worth nothing toward the purchase of a new horse.
            Lifestyle coordinator for Zora, Spooky, Wolfgang and Warrior


            • #7
              Well, OP is no novice and I know she will protect herself but...the VERY long time frame and infrequent payments on this are quite unusual. Let me ask has OP considered what would happen if they made 3 payments and backed out? Does she state all payments are non refundable in the contract? Since there is another half lease with a third party on the horse, would this lease option buyer want more access then the other straight lease party has? Just see a lot of worms in the can with this...and why aren't they able to go monthly with the payments as they will have to with board? They have a windfall coming or something they are counting on? Planning on selling something next year???? Or, hate to say it, playing a bit of an ownership charade with no clear plans on continuing? Just gives me a bad feeling having been burned more then once by those I should have run a credit check on but assumed they were on the level because they put up a good front.
              When opportunity knocks it's wearing overalls and looks like work.

              The horse world. Two people. Three opinions.


              • #8
                I missed the part about the half lease to a 3rd party! That's just too many people with their hands in the pot so to speak and too many opportunity for a disaster. I'm assuming the 3rd party or other lease is going to be "training" or working the horse so very novice buyer will at some point be a better match for the horse? What if very novice rider gets hurt? Are you going to be held liable since you own the horse? Has the horse been on the market awhile and not selling; hence your need to lease it out to 2 people, one of whom wants to buy but doesn't have the money. If rider is really novice, I'm hedging she is going to realize she is over horsed or riding isn't her cup of tea or just too expensive; she doesn't own tack or anything for the horse, doesn't have the money to pay for the horse so likely doesn't have money for tack and probably not for vet bills either should they arise. If you must - lease the horse out to both parties, set a fixed amount they both must pay per month, every month, horse stays with you but they have fixed times/days to use it. Detail out what they are responsible for paying for. Tell potential buyer the lease amount does not go to payments, horse will sell for $XX and she is free to buy at anytime, cash in full (should things work out then you could offer a discount when she has the cash to pay for the horse). Make sure other leaser knows horse is for sale and could leave at anytime.
                "My treasures do not chink or gleam, they glitter in the sun and neigh at night."


                • Original Poster

                  The assumption police are on their way! Please stay calm until they arrive!

                  1) Kid did not contact me about horse, I contacted her as she had a want ad. Knew a bit of her story. Kid sounded like she deserved some help. She had a horse previously that damaged her confidence. She was always upfront about the financial side.
                  2) Kid has to pay for horse herself. Parent ok with paying bills, but wants kid to pay for horse. I am cool with that. I used to be a kid who had to pay all my bills so I get it.
                  3) Kid was ok paying monthly, but I suggested every 3rd month. Not sure why, but I like it better. At each payment date, she can pay extra, with that extra counting an additional 10% towards the bottom line. There is an up front down payment to initiate the contract that is a reasonable amount, so if she realizes the horse isn't right for her after 2 months I still have some $$ and the horse isn't stuck with an owner that doesn't like him.
                  4) If novice rider gets hurt it is the same as if one of my other students/lease riders gets hurt.
                  5) 3rd party lease will be a student of mine. Or it will be me and I will then continue to use him in lessons. This really isn't that complicated. Lease person is paying a part lease amount. This covers his "cost" to me.
                  6) Lease payments are non-refundable. Payments towards purchase are non-refundable (other than over payments).
                  7) Using my tack as the horse sells with his tack. He came with his tack from previous owner, so may as well sell with it. She has her own saddles which she is bringing to try on him, but if they don't fit then why not let her use mine so she can sell hers and have more money towards the horse?
                  8) This is a nice horse. I do have someone else who may want him for their kid...but even though the money up front sounds tempting, being able to keep using this horse in lessons for a while longer has value for me to.

                  From my point of view this is an awesome arrangement all around. Horsey gets a new person, I get some money and get to keep using him in lessons, kid gets an awesome horse and to be at a barn that will really help her learn about riding and horse care, and horsey's training can be maintained while kid catches up to his level. If she bails on payments, I still have a good horse, and I have some money in my account.

                  Thank you for the ideas and considerations to take into account in the contract though! I think I will have two: one for the lease, and one for the purchase.
                  Freeing worms from cans everywhere!


                  • #10
                    it's easy to jump to assumptions when all the info isn't provided, I realize we aren't due it but its hard to give advice when the original post can lead to vastly different replies then the follow up post. Best wishes.
                    "My treasures do not chink or gleam, they glitter in the sun and neigh at night."


                    • #11
                      I bought my mare on installment plan (not lease to own), but one thing that I did do is mortality & health insurance, which at least reduced some of the risk for seller (and me, too, really) All the contract suggestions above are good.

                      Hope it works out.


                      • Original Poster

                        Originally posted by js View Post
                        it's easy to jump to assumptions when all the info isn't provided, I realize we aren't due it but its hard to give advice when the original post can lead to vastly different replies then the follow up post. Best wishes.
                        But my question wasn't IF I should do this, but rather HOW I should best go about doing this to protect both parties. I do appreciate the replies that assisted in this matter.
                        Freeing worms from cans everywhere!


                        • #13
                          Make sure you get major medical coverage along with mortality insurance. If horse colics and needs surgery or other massively expensive treatment, they won't pay out the mortality if the horse could possibly be treated and saved.
                          In an age when scientists are creating artificial intelligence, too many of our educational institutions seem to be creating artificial stupidity.—Thomas Sowell, Is Thinking Obsolete?


                          • #14
                            Sorry CHT but assumptions of what could go wrong based on what has gone wrong in our own personal experience make for good contract provisions.

                            i rescued a nice Hunter out of a situation very similar to yours. Kid bought it on payments with parental backing, kid lost interest and had other issues, nobody paid. That particular trainer was an AH and stuck it out back where it deteriorated to a 2/3 body score. I realize you would not do that but anyone entering into this type of deal could get stuck and people frequently search the forums for lease experiences and advice.

                            Hopefully this will work out well for you with due diligence and keeping the horse with you.
                            When opportunity knocks it's wearing overalls and looks like work.

                            The horse world. Two people. Three opinions.