Lease Option

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.

BREAKING DOWN '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 To Own

    An arrangement where an individual enters into a lease agreement ...
  2. Renter's Insurance

    A form of property insurance that provides coverage for a policy ...
  3. Month-To-Month Tenancy

    A type of rental agreement. Month-to-month tenancy is based upon ...
  4. Fixed Price Purchase Option

    The right, but not the obligation, to buy a leased item at a ...
  5. Property Insurance

    A policy that provides financial reimbursement to the owner or ...
  6. Income Property Mortgage

    A loan given to an investor to purchase a residential or commercial ...
Related Articles
  1. Options & Futures

    Rent To Own; Own To Rent

    This method can help first-time buyers afford a home using a rent-to-own strategy, and it can also be good for investors.
  2. Retirement

    Generate Income For Retirement with Real Estate

    Learn whether rental income is compatible with your lifestyle, how to identify suitable properties, common pitfalls to avoid and how to secure financing.
  3. Personal Finance

    Can't Sell Your Home? Rent It

    Find out how to profit from your property when the housing market dips.
  4. Insurance

    Is Renter’s Insurance Worth It?

    Renter’s insurance is so relatively inexpensive that there’s really no reason not to have it. Still, how much does it cost and what does it cover?
  5. Home & Auto

    Looking Out For Your Finances As A Renter

    Landlords and property owners have their fair share of problems and with responsibility comes great headache, but it ain't all roses for renters, either.
  6. Options & Futures

    How To Make Money WIth Real Estate Options

    Buying real estate options is one way to invest in real estate at a lower entry cost.
  7. Home & Auto

    Rent-To-Own Real Estate Full Of Pitfalls

    Before you consider this type of arrangement, you should be aware of how it works, who benefits and the many things that can go wrong.
  8. Budgeting

    Take Advantage Of A Housing Crisis - Rent!

    When a housing crisis strikes, the big winners are often the renters.
  9. Home & Auto

    Tips For The Prospective Landlord

    Investing in rental property can generate serious income, but there's more to it than collecting rent.
  10. Real Estate

    Top 10 Features of a Profitable Rental Property

    Looking to purchase a rental property? These are the factors that should be considered for income-producing real estate.
RELATED FAQS
  1. Can I get renters insurance without a lease?

    Find out whether you need to have a lease before you can get renters insurance. Learn about policy coverage and what information ... Read Answer >>
  2. Can real estate agents help renters find rental property?

    Real estate agents offer renters a true advantage when searching for a new home as well as negotiating power when signing ... Read Answer >>
  3. What's the difference between renter's insurance and homeowner's insurance?

    Renters insurance and homeowners insurance offer similar benefits for occupants and homeowners, but in different ways and ... Read Answer >>
  4. Does renters insurance cover car theft?

    Learn how the theft of a vehicle is not covered under a renters insurance policy but any personal property stolen from a ... Read Answer >>
  5. Does renters insurance cover jewelry?

    Learn what kind of coverage renters insurance provides for your jewelry, and find out what steps you can take to optimize ... Read Answer >>
  6. Does renters insurance cover theft?

    Learn how a renters insurance policy provides worldwide theft coverage of your personal property and how to document items ... Read Answer >>
Hot Definitions
  1. 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, ...
  2. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  3. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  4. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  5. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center