bargain purchase option

bargain purchase option

A right granted to a lessee, typically under a personal property lease such as for office equipment,but it could be a real property lease.The right,called the option,gives the lessee the ability to buy the property, at the end of the lease term, for a price substantially less than fair market value.The inclusion of a bargain purchase option in a lease contract is an indication that the contract is really a disguised seller-financing arrangement.As a result,“rent”payments previously written off in their entirety may be disallowed by the IRS because some portion of the rent was really payment of principal on a loan.In addition,under Sarbanes-Oxley,public companies may have to post such arrangements as liabilities on the company's balance sheets,contrary to prior custom and practices.