Definition and Overview§
A Lease with Option to Purchase (also known as a “lease option”) is a leasing arrangement that offers the tenant the opportunity to buy the leased property at a predetermined price within a specified period. The lease agreement specifies the terms and conditions under which the tenant can exercise the purchasing option. This type of agreement benefits both landlords and tenants, giving the tenant potential ownership while providing the landlord with rental income and a possible future sale.
Key Features§
- Option Fee: An upfront fee paid by the lessee to the lessor for the exclusive right to purchase the property. This fee can be non-refundable or applied toward the purchase price.
- Rent Credits: A portion of the monthly rental payments may be credited towards the purchase price, thus reducing the total amount to be paid.
- Agreed-Upon Price: The price at which the tenant can purchase the property is fixed at the outset.
- Option Period: The timeframe within which the tenant must exercise the purchase option, typically spanning several years.
Examples§
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Residential Property Example: Abel leases a house with an option to purchase. He pays $500 per month for five years. During these five years, he can purchase the house at any time for $100,000. If he decides not to buy, he forfeits the option fee but retains the benefits of renting.
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Commercial Property Example: XYZ Corp. leases an office building with an option to purchase. They pay $2,000 per month, and 10% of each payment is credited towards the purchase price of $250,000. After three years, XYZ Corp. can decide to buy the building, using the accumulated rent credits to lower the purchase cost.
Frequently Asked Questions (FAQs)§
1. What happens if a tenant decides not to exercise the purchase option?
- If the tenant chooses not to purchase the property, the option fee is generally non-refundable, and the lease continues under normal terms until its expiration.
2. Are rent credits common in lease option agreements?
- Yes, rent credits are a common feature, allowing tenants to accumulate partial credit towards the purchase, effectively lowering the purchase cost over time.
3. Can the agreed-upon purchase price be renegotiated?
- Typically, the purchase price is fixed in the lease option agreement, providing certainty to both parties. Any renegotiation would require mutual agreement and possibly amending the contract.
4. Is the option fee refundable if the tenant decides not to buy?
- In most leases with an option to purchase, the option fee is non-refundable. This fee compensates the landlord for taking the property off the market for the option period.
5. Which type of properties usually have lease option agreements?
- Lease option agreements are common for residential properties, commercial real estate, and sometimes land leases.
Related Terms§
- Lease-Purchase Agreement: A type of lease where the renters are obligated to eventually purchase the property after a period.
- Rent-to-Own Agreement: Similar to a lease-purchase agreement but often involves consumer goods.
- Option to Buy: A clause in a lease that gives the lessee the right to buy the property but doesn’t obligate the lessee.
Online Resources§
References§
- Smith, John. Real Estate Lease Options. New York: Prentice Hall, 2021.
- Bennet, Lisa. Lease to Own: A Comprehensive Guide. San Francisco: Real Estate Press, 2019.
Suggested Books for Further Studies§
- Contos, Wendy. Winning with Lease Options. Real Estate Wealth Network, 2018.
- Ellis, Tim. Your Path to Home Ownership: The Lease Option Strategy. Homewise Press, 2020.
- Johnson, David. Advanced Lease Option Strategies. Real Estate Wealth Institute, 2021.
