lease option

Also found in: Acronyms.

lease option

A contractual arrangement in which the tenant is given the right to buy the leased property under certain circumstances.An option is a right to buy,even if the seller later changes his or her mind and does not wish to sell to anyone at all.Contrast with a right of first refusal, which is the right to buy if and when the owner ever decides to sell.

Persons negotiating the terms of a lease option should consider the following:

1. Do you mean to grant an option or a right of first refusal? Be specific; call it by the right name and then describe what happens if the landlord wishes to sell to someone else.

2. What are the earliest and the latest dates on which the option can be exercised?

3. If the option can be exercised any time during the lease term, does it continue if there is a renewal or an extension of the lease? Renewals are new leases. Extensions are continua- tions of old leases.

4. Can the tenant sell the option to someone else without also assigning the lease to some- one else? If not, may the tenant at least sell the option to another entity in which the ten- ant (or specifically named person) is a controlling or 100 percent shareholder?

5. Will the price be set in the agreement, will the parties agree to a fair market value (usual- ly a bad idea because of the almost certainty of arguments), or will the parties agree to a formula that employs some index that is independent and easily verifiable?

6. What events will allow the option to be terminated by the landlord, even if the lease con- tinues? This could be late payment of rent, the tenant's failure to cure a nonmonetary default after notice by the landlord, or any other factors the parties may negotiate.

The Complete Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD. Copyright © 2007 by The McGraw-Hill Companies, Inc.
References in periodicals archive ?
However, we are obliged to sell the house or apartment to you at the agreed lease option price.
Waiving those lease options would be key to conducting a new competitive bidding process to sell the parcels.
The company's new lease options are designed to ensure that clients can enjoy the benefit of high quality chambers immediately while spreading the cost over the long-term, therefore not adversely affecting their company cash flow and day to day operations.
Volvo Car Corporation, a Sweden-based automaker, is offering new lease options for the month of January 2011.
FlairJet will initially have two leased Embraer Phenom 100 Very Light Jets and the company has agreed further lease options for delivery in 2010.
"That can lead to duplicative processes, missed lease options, overpayment of rent, manual gathering of lease information, and eventually a significant expense to have the database cleaned," added Leonard.
But in the old days, money was tight and credit and lease options were nonexistent.
Editorial includes articles on: late-fee formulas for tenants; tenant's right to audit books and records; partial payments; rules and regulations regarding sub-lets and assigns; consent for using alternative telecommunications providers; reducing the impact of tenant bankruptcies; tenant compliance with energy efficiency requirements; termination of lease options; gross-up clauses; improving operating expenses; and, insurance.