Lease Option

AAA

DEFINITION of 'Lease Option '

An agreement that gives a renter the choice to purchase a property during or at the end of the rental period. As long as the lease option period is in effect, the landlord/seller may not offer the property for sale to anyone else.


When the term expires, the renter must either exercise or forfeit the purchase option. A lease option gives a renter/potential buyer more flexibility than a lease-purchase agreement, which requires the renter to purchase the property at the end of the rental period.

INVESTOPEDIA EXPLAINS 'Lease Option '

The property owner may charge the renter a premium for the option to purchase the property, perhaps in the form of higher (above market value) monthly rental payments. The property owner may opt to apply some of the higher rental fee toward the purchase price if the renter exercises the option.


Any premium will likely be forfeited if the option is not exercised. The term of the option may be any period on which the property owner/landlord and potential purchaser/renter agree, but is commonly one to three years. The lease-option property's purchase price may be determined either at the outset of the agreement or at its conclusion.

RELATED TERMS
  1. Lease

    A legal document outlining the terms under which one party agrees ...
  2. Lessee

    The person who rents land or property from a lessor. The lessee ...
  3. Lessor

    The owner of an asset that is leased under an agreement to the ...
  4. Risk

    The chance that an investment's actual return will be different ...
  5. Closed-End Lease

    A rental agreement that puts no obligation on the lessee (the ...
  6. Open-End Lease

    A rental agreement that obliges the lessee (the person making ...
Related Articles
  1. Top 10 Features Of A Profitable Rental ...
    Entrepreneurship

    Top 10 Features Of A Profitable Rental ...

  2. 4 Alternatives To A Traditional Mortgage
    Home & Auto

    4 Alternatives To A Traditional Mortgage

  3. Rent-To-Own Real Estate Full Of Pitfalls
    Home & Auto

    Rent-To-Own Real Estate Full Of Pitfalls

  4. Rent To Own; Own To Rent
    Options & Futures

    Rent To Own; Own To Rent

comments powered by Disqus
Hot Definitions
  1. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  2. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  3. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  4. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  5. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  6. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
Trading Center