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. Rent To Own

    An arrangement between a consumer and a seller that allows the ...
  2. Lease To Own

    An arrangement where an individual enters into a lease agreement ...
  3. Lease Payments

    A line item under long-term debt on a balance sheet that indicates ...
  4. Lease

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

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

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

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center