What is a "lease option" in real estate?

A lease option in real estate refers to a rental agreement that not only allows a tenant to occupy a property but also grants the tenant the right to purchase the property at the end of the lease term. This arrangement typically includes terms specifying how the purchase price will be determined and may require the tenant to pay an option fee upfront for the privilege to purchase the property later.

The significance of this structure lies in its dual nature: it provides the tenant with the immediate benefit of living in the property while simultaneously securing an opportunity for home ownership, which can be particularly appealing for tenants who may not yet be in a position to buy immediately due to factors like credit concerns, saving for a down payment, or simply wanting to test out the property or area before committing to a purchase.

In contrast, options that do not involve a purchase right, such as a rental agreement without any purchase rights, would not qualify as a lease option, as they lack this critical component that allows for potential ownership. Other choices like property management options or agreements that are not subject to negotiations also do not encapsulate the essence of a lease option, which revolves around the combination of leasing and the potential for purchasing.