The Difference Between a "Contract for Deed" and a “Lease with an Option to Purchase” Explained

The New Hampshire Supreme Court (the “Court”) recently addressed an appeal involving an agreement to rent a single-family home, interpreting the agreement to be a lease agreement with an option to purchase, rather than a contract for deed. The Court affirmed the lower court’s decision, which effectively denied that the plaintiffs—tenants of a single-family home—held title to the property and approved of defendants’ eviction of the plaintiffs.

The case revolved around the Pratt family’s (the “Pratts”) lease agreement with Agel Corman Realty (“Corman”), which included an option to purchase the property. When the Pratts chose not to exercise this option and failed to vacate the property at the end of the lease term, they faced eviction proceedings.

The crux of the case centered on the nature of the agreement between the Pratts and Corman. The Pratts argued that the agreement was a contract for deed, which would grant them an equitable interest in the property. However, the Court disagreed, categorizing the agreement as a lease with an option to purchase and thereby holding that the Pratts held no ownership interest in the property.

The Court reasoned that when an agreement does not hold the purchaser liable for the full purchase price in the event of a default, it is an option contract that does not give rise to an equitable interest. It reasoned that, because the agreement lacked bilateral obligations and did not obligate the plaintiffs to purchase the property, the agreement was an option contract, rather than a contract for deed. The Court also rejected the argument that the agreement transformed into a contract for deed due to certain payment provisions.

Second, the Court held that the defendants had satisfied the legal requirements for evicting the plaintiffs. Specifically, the Court noted that because the property was unrestricted under New Hampshire law, the defendants only needed to provide proper notice of eviction and did not have to show “good cause.”

The Court also rejected the Pratts’ arguments that, because the defendants had accepted rent payments after the end of the lease term, Corman had either created a new tenancy agreement or waived their right to evict. The Court ruled that the acceptance of rent did not establish a new tenancy nor waive the right to evict, especially since eviction proceedings were already underway and the defendants had clearly communicated that they were moving forward with eviction.

The decision reaffirmed the legal principles governing lease agreements and property rights, emphasizing the importance of clear contract terms and the distinction between different types of real estate agreements.

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