What is meant by a lease option in real estate?

A lease option in real estate refers to an agreement that simultaneously allows a tenant to rent a property while also giving them the potential right to purchase it later. This arrangement is beneficial for both parties: the landlord secures a tenant for a certain period, while the tenant has the opportunity to build equity in the property without an immediate full commitment to purchase.

The lease will typically specify the terms under which the tenant can exercise their option to buy, including the purchase price or how it will be determined at a later date. This structure provides flexibility for those who may not be ready to buy immediately but are interested in the property as a long-term investment.

In contrast, the other options do not accurately represent what a lease option entails. For instance, the idea of an option for the landlord to sell the property does not capture the essence of a lease option, which is fundamentally about the tenant’s rights. Similarly, a lease that restricts tenant improvements focuses solely on the conditions of habitation rather than ownership potential, while a type of mortgage agreement fundamentally differs from lease agreements in terms of ownership and financing.