What does the term "lease option" refer to in real estate?

The term "lease option" in real estate specifically refers to a rental agreement that not only provides the right to rent a property but also includes the opportunity for the tenant to purchase the property at a later specified date or under certain conditions. This arrangement allows the tenant to occupy the property while retaining the option to buy it, often at a predetermined price, which can be an attractive feature for both tenants and landlords.

This structure benefits potential buyers who may need time to improve their financial situation, save for a down payment, or conduct thorough due diligence on the property before making a purchase decision. It provides a way to secure the property now while keeping future purchasing options open.

In contrast, other forms of rental agreements lack the purchase option aspect. For example, a standard rental agreement simply outlines the terms of renting without providing any opportunity for purchase. Therefore, asserting that a lease option is a mere rental agreement without purchase provisions is inaccurate. Similarly, requiring tenants to pay a premium for early purchase, or having fixed rent for the lease term, does not encapsulate the unique combination of leasing with an option to buy, which is what defines the lease option specifically.