What is a lease option agreement?

A lease option agreement is a contractual arrangement that grants tenants the right to purchase the property at a specified future date, often at a predetermined price. This type of agreement provides tenants with the flexibility to live in the property while deciding whether to buy it, which can be an appealing arrangement for both parties. The tenant typically pays an upfront option fee for this right, which may be applied to the purchase price if the tenant decides to proceed with the purchase.

This arrangement differs significantly from other types of agreements; for instance, an automatic extension of lease terms does not provide any purchase options, nor does it involve any aspect of buying the property. Subleasing does not typically entail a purchase option either, as it involves renting the property to a third party. Lastly, a temporary lease with reduced rent focuses solely on lease terms and does not offer a purchasing opportunity, which is a key characteristic of a lease option agreement.