Bargain Renewal Option

DEFINITION of 'Bargain Renewal Option'

A clause in a lease agreement that gives the lessee the option to renew or extend the original lease on an asset at rates well below market rates. The inclusion of such a clause would require the lessee to classify the lease as a capital lease rather than an operating lease.

BREAKING DOWN 'Bargain Renewal Option'

For example, assume a lease agreement on a property gives the lessee the option to renew it at a monthly lease rate of $10,000, whereas the prevailing market rate is $15,000.


Since a capital lease confers some of the rights of property ownership upon the lessee, as opposed to an operating lease which is purely a rental arrangement, there are significant differences in the accounting treatment of the leased asset and lease payments for capital leases and operating leases.

RELATED TERMS
  1. Bargain Purchase Option

    An option in a lease agreement that allows the lessee to purchase ...
  2. Land Lease Option

    An option within a lease contract that grants the lessee the ...
  3. Closed-End Lease

    A rental agreement that puts no obligation on the lessee (the ...
  4. True Lease

    A specific type of multi-year lease which does not pass on ownership ...
  5. Capital Lease

    A lease considered to have the economic characteristics of asset ...
  6. Triple Net Lease

    A lease agreement that designates the lessee (the tenant) as ...
Related Articles
  1. Economics

    How Does an Operating Lease Work?

    Operating lease is a term used mostly in accounting to denote a lease that gives the lessee rights to use and operate an asset without ownership.
  2. Economics

    What is a Capital Lease?

    A lease considered to have the economic characteristics of asset ownership.
  3. Savings

    Is There a Way to Get Out of Your Car Lease Early?

    For those who no longer want their car for whatever reason, transferring the lease to an interested party can be a particularly appealing choice.
  4. Savings

    Why You Should Buy A Car Instead Of Leasing

    While leasing has certain advantages, buying a car tends to save you money in the long run and offers greater flexibility.
  5. Credit & Loans

    How Does a Lease Work?

    A lease is an agreement between two parties where the lessor owns property that it allows the lessee to use pursuant to terms of the agreement.
  6. Savings

    When Is Leasing A Car Your Best Bet?

    Leasing a car isn't right for everyone. But it's attractive for those who want low initial payments and the ability to get a new vehicle every few years.
  7. Home & Auto

    When Is Buying A Car Better Than Leasing?

    People who lease a car are often more concerned with the short-term picture.
  8. Investing News

    Auto Leasing Hits Record High in Q4

    Auto Leasing is continuously growing in popularity as a preferred choice of financing.
  9. Investing News

    Auto Leasing Hits Record High in Q4

    On Thursday, Experian Automotive – a company that tracks financing options for new and used vehicles – released a report that highlights more consumers are leasing, rather than buying, new or ...
  10. Home & Auto

    Millennials Guide: How To Read a Lease

    Everything you need to know before you rent a home.
RELATED FAQS
  1. At the beginning of the year, ABC Corp. began to lease a major piece of equipment ...

    The correct answer is: A) Under the capitalized lease method, the lessee must treat the asset as if it was purchased with ... Read Answer >>
  2. Why might a bond agreement limit the amount of assets that the firm can lease?

    Bond covenants can limit the amount of leases a company can have because leasing contracts are a form of debt. Taking on ... Read Answer >>
  3. How have low interest rates affected lease rates in the automotive sector?

    Find out how and why lower interest rates for leasing new automobiles have helped spur more consumers to lease cars instead ... Read Answer >>
  4. At the beginning of the year, HIJ Corp. began to lease new equipment ...

    The correct answer is: b) Total Lease Payment = Interest expense + Principal repayment Step 1: Interest expense = 8.5% of ... Read Answer >>
  5. You are currently reviewing the following information for JKL Corp ...

    Free info on financial certification exams including study guides, exam questions, and much more! Read Answer >>
  6. What are the differences between single, double and triple-net leases?

    Learn the ins and outs of net lease agreements, including the key differences between single net, double net and triple net ... Read Answer >>
Hot Definitions
  1. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  2. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  3. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  4. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  5. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  6. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
Trading Center