Written by attorney Norman D Praet

A guide to North Carolina Lease Options

The rules governing lease options changed on October 1, 2010 after the passage of North Carolina Homeowner and Homebuyer Protection Act. This guide is designed to help you comply with those changes.

What options are affected? The new law affects all options to purchase contained in a lease, or executed concurrently (at or near the same time) with the lease. If you offer an existing tenant an option to purchase then this law should affect you. Are there any changes to the option contract? The option contract is now required to be in writing and given to the purchaser. Further, the option contract must be recorded by the seller at the register of deeds within five business days after signing by both parties. In the alternative, the seller can record a "Memorandum of Option Contract," which must contain the names of the parties, the signature of the parties, a description of the property, the time during which the option must be exercised, and a statement that the purchaser has the right to cure a default once every twelve months. The option contract itself must contain: 1) full names and address of all parties to the contract; 2) the date the contract was signed by each party; 3) a legal description of the property to be conveyed subject to the option; 4) the sales price of the property; 5) all fees or payments paid by each of the parties including the option fee; 6) all duties whose breach will result in forfeiture of the option; 7) the time period during which the option may be exercised; 8) a statement of the rights of the purchaser, including the right to cure a default once during each 12 month period; and 9) a statement in at least 14 point boldface directly above the purchaser’s signature, that the purchaser has the right to cancel the option any time prior to midnight of the third business day following the signing of the option. What happens if the purchaser defaults? In the case of default, as stated above the purchaser has the right to cure once every 12 month period. The seller must be given at least 30 days from receipt of the notice before he is evicted or loses the option. Additionally, the seller must provide a written notice of default that advises the purchaser of: a) the nature of the default, including the amount if the default is a failure to pay; b) the date by which the purchaser must cure the default or the option will be forfeit; and c) the name and address of the seller or the attorney for the seller. The notice of default must be served by hand, sheriff, or certified mail or equivalent. What if the purchaser does not remedy the default? The seller must obtain and record a mutual termination executed by both the purchaser and the seller, or obtain a judgment by a judge of competent jurisdiction that terminates the option and extinguishes the purchaser’s right of redemption. The judgment must be recorded at the register of deeds as well. After the default notice has been served, and not cured within 30 days if it is the purchaser's first default of the year, the seller may move forward to cancel the option and the purchaser's equitable right of redemption by either: a)filing an agreement terminating the option, signed by all parties, at the register of deeds; or b)obtaining a court order terminatng the purchaser's option, and filing the order with the register of deeds. What if the seller defaults? If the seller defaults on a loan secured by the property during the option period the purchaser may cancel and rescind the option contract. The seller will have to return all monies paid by the purchaser under the option, less the fair market rental value of the property while it was occupied by the purchaser and compensation for any damage to the property by the purchaser that is beyond normal wear and tear. What are the penalties for violating the act? A violation of this act is an unfair and deceptive trade practice subjecting the seller to treble damages and attorney’s fees, as well as equitable and declaratory relief.

This guide is for information purposes only and is not intended as legal advice. This guide does not create an attorney-client relationship. A lawyer specailizing in this area of law should be contacted for answers to your specific questions.

Additional resources provided by the author

The North Carolina Homeowner and Homebuyer Protection Act can be found in its entirety at

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