What Is a Land Contract In Ohio? Full Guide [2023 Update]

What is a Land Contract in Ohio?In commercial real estate, buyers and sellers must be knowledgeable to make informed decisions. Are you familiar with a commercial land contract in Ohio, as well as the state-specific requirements? So, what is a commercial land contract in Ohio? Essentially, a land contract is an alternative financing option if you’re investing in:

  • Farmland or raw land
  • Multifamily housing
  • A commercial building
  • A home or condo

While a commercial land contract might be ideal for you, there are important details you need to know, first. So, what is a land contract agreement, and how does it work? Let us give you a lay of the land (pun intended)! Learn how you, the commercial real estate investor, can avoid the bank and make an agreement directly with the seller.

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What Is a Land Contract?

A land contract is a legal agreement between a buyer and seller where an installment payment is arranged for purchasing land or other real property. Unlike a mortgage where the buyer borrows money from a lender or bank to buy real property, a land contract is a seller-financed lending agreement; the buyer makes regularly scheduled payments to the seller until the property is paid in full. Either the full payment or a portion of it is deferred. The land contract may stipulate monthly payments until the entire amount is paid, or a final balloon payment may be due at the end.

Upon executing the agreement, the buyer acquires access to the property but the seller holds the legal title until the loan is paid off. Once the loan payments are satisfied, the seller legally transfers the title to the buyer; at this point, the buyer owns the property, free and clear. If a buyer fails to meet the terms of an installment land contract, they forfeit their legal rights to the property and any payments remitted. A seller can also regain legal possession of the real estate property through a forfeiture process or sometimes a foreclosure. Does a land contract have to be recorded? Yes, a land contract (Ohio-based and in other states) must be recorded shortly after the agreement is executed. We detail Ohio land contract laws in the sections, below.

Land contracts enable buyers who don’t have the best credit an alternative option to traditional financing, such as a mortgage. While land contracts are usually for the sale of vacant land, they’re also used to purchase other real estate properties such as a commercial building, an apartment building, a house, or other real property. When there’s a structure on the property, a land contract may include both the land and the property on the land. Now that you know the answer to the burning question, “What is a land contract?” we’ll dig deeper, below.


What Is Another Name for a Land Contract?

A land contract in Ohio is often called a land installment contract. Depending upon the legal or common real estate terminology in your area, you may see these types of land agreements referred to as the following terms:

  • Agreement for deed
  • Bond for title
  • Contract for deed
  • Deeds of trust
  • Installment land contract
  • Installment sale agreement
  • Installment sale contract
  • Land contract
  • Land installment contract
  • Land sale contract
  • Memorandums of contract
  • Real estate contract
  • Terms contract
  • Trust deeds


How Do Commercial Land Contracts Differ from Other Loan Agreements?

You may have noticed that a land contract sounds similar to a mortgage. The big difference is that you are not borrowing money from a bank or lender and paying back the purchase price plus your mortgage payments to the bank. Instead, you are paying these installments to the seller. As such, some investors that buy Ohio property for sale to flip consider offering a land contract for their real property.

Aside from direct payments from the buyer to the seller, commercial land contracts differ from other loan agreements, as follows:

  • Direct payments from buyer to seller. The buyer makes an initial down payment to the seller directly and then continues to pay monthly installments of the principal plus interest over a specified period. (Hence, the name land installment contracts.) The agreement is solely between the buyer and seller, and no bank or lender is involved.
  • Deed remains with the seller. While the buyer takes possession of the property, as with mortgages, the seller retains the deed and legal title to the property as security and collateral until the installment payments are fulfilled. At that time, the seller then transfers the deed to the buyer.
  • Obligation to buy. Unlike lease-to-own agreements, where lessees typically have the option to purchase the property at the end of the leasing term, a land contract requires the buyer to agree up-front to pay the full price of the real estate.
  • Equitable title for the buyer. Once the buyer begins making payments on commercial real estate under a land contract, the buyer carries an equitable title and financial interest in the property.


What Is the Difference Between a Land Contract and Lease-to-Own Agreement?

We’ve talked ad nauseam about land contracts (don’t worry, there’s more to come); so, what is a lease-to-own agreement? In a lease-to-own agreement, the buyer has the option to purchase the property at an agreed-upon price. It might be easier to think of the “buyer” as the “lessor” and the “seller” as the “lessee” because ownership is not changing hands.

On the flip side, a land contract is the sale of a property, where the seller finances the deal. So, what are the benefits of a lease-to-own agreement for the buyer? First and foremost, specific costs associated with the property, namely taxes and insurance, are not the buyer’s responsibility. In addition, there is no obligation to buy the property in a lease-to-own arrangement. As such, depending on the agreement’s specifics, the lessor can walk away if they are unsatisfied with the property.

For the seller or lessee, a lease-to-own agreement offers an “option-to-buy” fee at the execution of the contract to encourage the buyer to purchase the property eventually. And, while they are still responsible for taxes, insurance, mortgage payments, and maintenance fees on the property, the seller can more easily evict a buyer because they do not have any claim of ownership.


What Is a Commercial Ground Lease? And, Is It the Same as a Commercial Land Contract?

The words “ground” and “land” may be synonymous in the thesaurus; however, that’s where the similarities between a commercial ground lease and commercial land contract (in Ohio or other states) end. At its most basic level, a commercial ground lease is not a sale of land, but rather a rental of land to a tenant that plans to build on the property. A commercial ground lease is typically a long-term commitment (50-99 years).

Why would a tenant opt for a commercial ground lease? In most cases, tenants seek commercial ground leases for land in high-traffic or well-populated areas because often such land is cost-prohibitive. And, since the tenant desires to build on the land, they prefer to direct funds toward construction costs rather than upfront costs associated with a commercial real estate purchase.

A commercial ground lease allows the landowner to retain control of the land while enjoying a steady stream of income from the tenant. Furthermore, the tenant is responsible for all costs for improving the land, thus increasing the commercial property’s overall value.


Commercial Land Contracts Sound Too Good to Be True… What’s the Catch?

Many commercial real estate investors favor a commercial land contract in Ohio because they require less capital for a down payment than traditional loans. Also, since the property can start being utilized once the contract is signed, this method allows the investor to begin quickly using the property.

Commercial land contracts do not require involvement with banks, lenders, or real estate agents. Therefore, this makes them easier to obtain compared to traditional loans. Additional expenses from these third parties, such as credit underwriting and closing costs, are eliminated.


What Are the Benefits of Commercial Land Contracts?

A commercial land contract is an appealing option for both buyers and sellers regarding commercial real estate.

What are the advantages of a land contract for a buyer?

If you are a commercial real estate buyer (or investor), below are some benefits that you can reap through your commercial land contract:

  • Easier to obtain financing. Land contracts allow buyers to get a loan even if they aren’t approved for a traditional loan from a bank or lender.
  • High degree of protection. As the buyer, you can obtain the title insurance on the property and register the sale within the county, upfront. This will bring to light any restrictions or liens on the property, eliminating the possibility of the seller trying to sell the property to someone else over the 3-5 year contracted period.
  • Tax advantages. There are many tax advantages with commercial land contracts. Buyers can claim property taxes, the value of improvement projects (i.e., energy-efficient fixtures), and the mortgage interest as tax deductions.

What are the advantages of a land contract for a seller?

For commercial real estate sellers, land contracts can be just as attractive. Some seller benefits include:

  • Steady income stream. Through a land contract, the seller receives a steady income for the duration of the agreement.
  • Reduction in fees. In a commercial land contract, a seller can earn a proper selling price for the real estate property without the additional closing costs.
  • Maintenance and tax liability lifted. Commercial land contracts allow the buyer to inhabit the property immediately. While you, as the seller, still hold the deed and the legal title to the property, the buyer will usually adopt the responsibilities of both property maintenance and taxes.


And, What Are the Risks of Land Contracts for Buyers and Sellers?

What are the disadvantages of a land contract for a buyer?

As with any real estate investment, there are risks and challenges when executing land contracts in Ohio and any other state. Below are a few pitfalls for land buyers or other commercial real estate investors to consider. What is the main disadvantage of a land contract to sellers? See the first bullet point.

  • Higher interest rates. The seller may implement a higher interest rate since they bear most of the risk.
  • The possibility of still needing a loan. Some buyers may still need financial assistance towards the end of the stipulated period. That’s because the land contract typically has a “balloon payment” at the end of the agreement. Many buyers end up applying for financing at this point, in the form of a mortgage. However, suppose the buyer chose the land contract route initially because that buyer could not get approved for a traditional mortgage. In that case, they might be stuck in the same predicament if they cannot cover the remaining amount on their own.
  • No legal title. As the land buyer, you do not own the property until you have made your final payment. While you may inhabit the property, perform the upkeep, and pay the taxes, the property is not legally yours until the full price agreed upon in the contract is met. The buyer has an equitable title, not a legal title to the property. Seller risk comes into play here. If the seller defaults on their mortgage, the buyer risks nullifying the contract and facing eviction.
  • Risk of eviction. Until you have paid 20 percent of the purchase price, or made five years of payments, missing just one payment is grounds for eviction – just as if you were a tenant, renting. Also, if you are evicted from the property, you will lose not only your down payment but also any land installment payments made up until that point, as well as the value of any improvements you have made to the property.

What are the disadvantages of a land contract for a seller?

On the flip side, address the following key points if you enter a land contract as a seller.

  • The sale is not guaranteed. If the buyer defaults on your land contract, you are entitled to regain possession of your property and typically keep the payments made thus far; however, the buyer is not obligated to complete or owe you the remainder of the sale amount.
  • Financial due diligence is your responsibility. Without a bank or lender, you, as the seller, operate as that party. Therefore, you must vet your buyer and ensure that they are financially capable of entering the contract.
  • Maintenance is out of your control. Property maintenance is the buyer’s responsibility once both parties sign the contract. What happens if the buyer defaults on the loan and is evicted but does not maintain the property well? The responsibility then shifts to the seller.


What Questions Should You Ask Before Entering a Land Installment Contract?

Once you execute a land contract, you become legally bound to the terms and conditions. Therefore, you must understand exactly what you’re getting into with your land contract agreement. Below are some questions you should ask the seller before considering a land contract in Ohio.

  • Who legally owns the property for sale?
  • What is the condition of the land and property?
  • Are there any outstanding claims against the property?
  • Is there another land contract already on the property?
  • What is the required minimum down payment?
  • Is there a grace period for the land installment contract payments?
  • Which party is responsible for drafting the land contract?
  • Is the buyer or seller responsible for maintaining the land and property? (Usually, land contracts stipulate that the buyer is responsible for all maintenance.)
  • Who pays property taxes on a land contract? (The land buyer typically pays property taxes via the property owner, but confirming this in the land contract agreement is essential.)
  • When will the property owner record the land contract? (In Ohio, land contracts must be filed within 20 days of the execution of the land contract agreement.)

Ensure complete answers to all questions listed above (and many more) with proper legal representation. Additionally, a thorough inspection, land appraisal (as well as an appraisal of the property, if applicable), and financial and credit history review should be performed on both sides.


What Are the Requirements of a Land Contract In Ohio, Specifically?

According to Nolo.com, land contracts in Ohio and across the United States pertain to “real estate such as vacant land, a house, an apartment building, a commercial building, and other real property.” That said, when executed in Ohio, land contracts cannot be entered into over vacant land. For the contract to be valid, a permanent building must exist on the land. If you’re looking to buy land for sale, Ohio offers many beautiful options. However, if you’re considering buying land with a land contract, look for Ohio land for sale with a structure.

So, how does a land contract work in Ohio?

Requirements can vary from state to state, but when executed in Ohio, land contracts must include specific details, such as the following:

  • Personal information. Full names and current mailing addresses of all parties directly involved
  • Specific dates. The execution date of the land contract in Ohio by both parties as well as specific payment dates and deadlines
  • Full description of the property. A legal description of the property to be sold, including its location
  • Total sale price, down payment, and payment schedule. In accordance with the specific dates mentioned above, all financial obligations must be on the record; the obligations include:
    • Total sale price
    • Date and amount of the down payment
    • Principal balance owed (total sale price plus any fees for services, minus the down payment)
    • Amount of each future installment payment and the due date for each payment
  • Interest rate. The rate agreed upon, which will be charged on the unpaid balance
  • Frequency of statements. A predetermined frequency (either biannual or annual) of statements showing the amount credited to the principal and interest, as well as the balance due
  • Disclosure of encumbrances. A statement of any encumbrances against the property, such as liens, mortgages, etc.
  • Promise of the deed transfer. The seller must sign and agree to transfer the property’s general warranty deed once the buyer has completed their payments
  • Any additional charges or fees. For services that are included in the land contract but separate from the contract price

For additional information, the Land Contract Ohio Revised Code – Chapter 5313 provides requirements and other pertinent information on land installment contracts regarding real property in Ohio. You may also use their search feature to examine specific matters regarding Ohio land contracts.


Recording a Commercial Land Contract In Ohio: Who Does It, and How?

Does a land contract have to be recorded in Ohio? Yes. Upon execution, the commercial land contract in Ohio must be recorded with the county recorder’s office within the jurisdiction of the real estate (per Ohio Rev Code § 5301.01). In Franklin County, Ohio (where The Robert Weiler Company is based), you can find the Ohio County Recorder’s office in Columbus on 373 S. High Street, 18th floor. Search OhioRecorders.com for an office near you. Be aware that, within 20 days of signing the agreement, you must file a record of the land contract in the office where the property is located. If the seller does not file the land contract in Ohio County Recorder’s office within 20 days, the seller must do so for their protection.

As described above, when entering a land contract, Ohio has specific requirements you must meet. Make sure you research these requirements and the property you are considering. Anytime you are about to enter a binding agreement, you should consult an attorney for legal advice. Contact the Ohio State Bar Association to find an attorney in your area. Alternatively, if you cannot afford an attorney, contact Ohio’s legal aid program at 1-866-Law-Ohio. Their programs cover all 88 counties in the state. And their team can assist you with executing your commercial land contract in Ohio.


How to Cancel a Land Contract in Ohio?

A seller and buyer’s options to cancel a land contract depend on many factors. The location of the property is important as laws vary between states. The amount of time a buyer has made payments and how much of the balance remains are also significant.

How to get out of a land contract in Ohio as a seller:

If the buyer defaults on a land contract in Ohio, the seller can cancel the contract. However, the seller cannot seek forfeiture until at least 30 days after the default took place. (Per Ohio Revised Code Chapter 5313.05.) During those initial 30 days, the buyer may remedy the default and reinstate the land contract by remitting all payments owed, including late fees. If the buyer does not remedy their default within 30 days, the seller may cancel the land contract.

The seller must notify the buyer, requesting that they fulfill their part of the land contract within a specific timeframe, including remitting all outstanding payments. If the buyer does not fulfill their obligations, the seller may file a land contract forfeiture claim in court. Depending on the outcome of the court case, the seller may be able to keep all payments already received and retain rights to the property; thus, beginning eviction proceedings.

Note: If the buyer paid for under five years, totaling under 20% of the purchase price, the seller may cancel the land contract in Ohio and evict the buyer. The seller must file a “forcible entry and detainer” claim to regain possession of the property. (Per Ohio Revised Code Chapter 1923.)

How to get out of a land contract in Ohio as a buyer:

The buyer may try to cancel the land contract by taking the seller to court to recover remitted payments. The outcome depends on how long the buyer made consistent payments and how much of the balance remains. However, if the buyer successfully recovers payments, they will likely be ordered to backpay an appropriate amount of rent for the time they resided on the property. Although, in this instance, a solid land contract agreement will often result in the judge ruling in the seller’s favor.

(Please keep in mind that we are a commercial real estate agency, not a law firm. We urge you to speak with your attorney if you need to cancel a land contract in Ohio. An attorney can review your case and provide the best course of action for your specific needs.)


How Can The Robert Weiler Company Assist with Your Commercial Real Estate Contract?

The world of commercial real estate can be complex; let The Robert Weiler Company team untangle the layers for you! Interested in purchasing commercial real estate and want to pursue a less traditional route? A commercial land contract in Ohio may be ideal for you. Our licensed commercial brokers can also help you find buyers for your land sale contract. And our commercial land appraisers can provide you with an appraisal for land.

Our skilled commercial brokerage team has been personally connected to the greater Columbus, Ohio community for 85 years. We deeply understand the market and have meticulous and up-to-date industry knowledge. As such, we have the expertise to elaborate on the two most asked questions: “How do land contracts work in Ohio?” and “What is a land contract in Ohio?” Speak with one of our CRE brokers today at 614-221-4286.


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