Contract Glossary
Lease Option
Definition
A lease option (also called a lease-to-own or rent-to-own agreement) is a contract that gives a tenant the right, but not the obligation, to purchase the property they are renting at a predetermined price within a specified time frame. The tenant typically pays an upfront option fee (non-refundable) and may pay above-market rent, with the excess credited toward the purchase price. If the tenant decides not to buy, they forfeit the option fee and any rent credits.
In Practice
A tenant signs a two-year lease option on a house priced at $300,000. They pay a $10,000 option fee and $1,800/month rent ($200/month above market rate, credited toward purchase). After two years, they've accumulated $14,800 in credits ($10,000 + $4,800 rent credits). They exercise the option and purchase the house for $285,200 ($300,000 minus credits). If they had chosen not to buy, they'd lose the $14,800.
Example Clause
Landlord hereby grants Tenant an exclusive option to purchase the Premises at a price of $[Amount] (the 'Option Price'), exercisable by written notice delivered to Landlord on or before [Expiration Date]. Tenant shall pay a non-refundable option consideration of $[Amount] upon execution of this Agreement. Of the monthly rent of $[Amount], $[Amount] per month shall be credited toward the Option Price if the option is exercised.
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Frequently asked questions about lease option
A lease option gives the tenant the right but not the obligation to buy — they can walk away (losing the option fee). A lease purchase obligates the tenant to buy the property at the end of the lease term. If the tenant in a lease purchase doesn't close, the landlord can sue for breach of contract. Lease options are generally more tenant-friendly because they preserve flexibility.
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Create your contractThis content is for informational purposes only and does not constitute legal advice. For contracts with significant financial or legal implications, review by a qualified attorney is recommended.