Hire Purchase and Rent-To-Own: The Difference.

Daily Law Tips (Tip 721) by Onyekachi Umah, Esq., LL.M, ACIArb(UK)

Introduction:
Common in auto-mobile retailing is hire purchase. Hire purchase is a hire that comes with an option to purchase the hired goods. It is a mixture of a contract of hire and an option to purchase. Recently, in the real estate sector is a new diction and option; “Rent-To-Own”. Both hire purchase and rent-to-own are commercial options, where there is no immediate cash for an outright purchase. The difference between the two determines their separate legal implications and benefits. This work focuses on the nature and differences between hire purchase and a rent-to-own.

Nature of Hire Purchase and Rent-To-Own:
The nature of a Rent-to-Own transaction mandates a tenant to acquire the property of his landlord through an instalment payment of a purchase price. Hence, in a Rent-to-Own transaction, the landlord/owner of the property retains ownership of property, while the tenant/purchaser takes possession of the property and the agreed purchase price is paid over time in instalments. Upon the complete payment of the agreed purchase price to the owner/landlord, the ownership of the property transfers to the tenant/owner. It is not impossible to find a Rent-to-Own transaction, where both ownership and possession of a property are transferred on credit to a tenant/purchaser, allowing instalment payment of purchase price to landlord/seller.

Hire Purchase Vs. Rent-To-Own:
A Rent-to-Own is not a hire purchase transaction rather could be a conditional credit sale transaction or a credit sale transaction. It is a conditional credit sale where ownership of property is maintained by the owner/landlord, while possession is held by the tenant/purchaser and ownership will transfer to the tenant/purchaser, upon full payment of purchase price by the tenant/purchaser. It is a credit sale where both ownership and possession of property is transferred to the tenant/purchaser, ahead of full payment of purchase price by the tenant/purchaser. In a hire purchase transaction, a hirer is not under any obligation to purchase hired goods, unlike in a Rent-to-Own transaction, where a tenant/purchaser is mandated to purchase the subject matter of agreement.

My authorities, are:
1. Sections 1 to 20 of the Hire Purchase Act, 1965.
2. The judgment of the Supreme Court of Nigeria (on the meaning of hire purchase) in the case of RAIMI v. OGUNDANA & ORS (1986) LPELR-2938(SC).
3. The judgement of the Supreme Court of Nigeria (on the concept of hire purchase) in the case of AJAGBE v. IDOWU (2011) LPELR-279(SC)
4. The judgment of the Supreme Court of Nigeria (on the nature of hire purchase) in the case of AFROTEC TECHNICAL SERVICES (NIG) LTD v. MIA & SONS LTD & ANOR (2000) LPELR-219(SC).

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