What is a Life Estate Contract
When Would a Life Estate Contract Be Used?
This form of a rental agreement is often used between family or close friends. It gives the tenant full property rights for the duration of their stay on the property, but includes a stipulation that the property will revert back to the landlord at the time of the person either moving away or because they passed away. In short, this contract allows someone to fully use a property during their life until they either want the contract terminated or they pass away.
A life estate contract tenant cannot pass this agreement onto their heirs without prior permission from the property owner. A new life estate contract would need to be drafted for any heir of the initial tenant of the property.
Can a Life Estate Contract Ever Be Terminated?
There are some specific instances where this contract can be terminated without the consent of the tenant. The most common method of termination occurs when the tenant fails to meet an obligation of the written contract. Conducting illegal business on the property, for example, could result in the termination of a life estate contract. Failing to care for the property as agreed or failing to make any agreed upon payments would also be grounds for initiating a reversion of the property back to the owner.
Just as with any other rental agreement, however, the local court system must get involved in order to nullify the contract. A judge must rule on whether or not the tenant has violated the life estate contract and the case will proceed from there. A summons must be issued in this instance and the only way to avoid court is for the tenant to not respond to the summons with a predetermined period of time.
Is a Life Estate Contract a Good Choice To Make?
For the average property, a life estate contract isn't a good choice. If, however, a tenant is looking for a permanent place to live and may not qualify for a mortgage and you trust this person immensely as the property owner, it could be the right decision to make. Some areas allow a partial life estate contract to be formed as well, which deeds over some usage rights but limited ownership rights.
What is right for you? That is a discussion to have with a qualified legal professional in your area. With a little planning, however, a life estate contract could be an essential part of your portfolio while being able to help someone you care about immensely, and that's never a bad thing... as long as you protect your investment before finalizing any agreement.
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