What is a lease option and how does it work?

A lease option, also commonly known as a rent-to-own agreement, is a type of arrangement where a landlord leases a property to a tenant with an option for the tenant to purchase the property at a later date. This agreement allows the tenant to rent the property for a specified period, typically 1-3 years, with the opportunity to buy the property at an agreed-upon price at the end of the lease term.

How does a lease option work?

When entering into a lease option agreement, the tenant pays an upfront option fee, which gives them the right to buy the property in the future. This fee is typically non-refundable and acts as a down payment on the property. Additionally, a portion of the monthly rent payments may be credited towards the purchase price of the property, providing the tenant with a financial incentive to buy the property.

Benefits for landlords and tenants

For landlords, a lease option agreement can attract tenants who are interested in potentially buying the property, leading to more stable and committed renters. For tenants, a lease option provides the opportunity to test out the property before committing to purchase, as well as a chance to build equity in the property over time.

Before entering into a lease option agreement, both landlords and tenants should carefully review the terms of the contract, including the purchase price, lease term, option fee, and any other relevant details to ensure a clear understanding of the agreement.