What is a lease option?

A lease option is a rental agreement that provides the tenant with the opportunity to purchase the property at a predetermined price within a specific time frame. This type of agreement combines elements of both leasing and buying real estate, making it appealing for tenants who may wish to become homeowners but may not be ready to do so immediately.

The lease option typically entails the tenant paying an option fee, which secures their right to purchase the property later on. During the lease period, tenants usually pay rent, and a portion of that rent may be credited toward the eventual purchase price of the property if they choose to exercise their option to buy.

This practice is beneficial for both parties: for tenants, it provides flexibility and the chance to invest in a property without committing to an outright purchase at the beginning, while landlords can enjoy ongoing rental income and may attract more potential buyers for their properties.

In contrast, other options presented do not accurately capture the essence of a lease option. A rental agreement with annual renewals implies ongoing leasing without any purchase opportunity, a verbal agreement does not provide the formal structure typical of leasing arrangements, and a short-term rental agreement typically refers to a lease without any option to buy.