Let’s Look at Lease Options: What are They?

Real Estate Law

Financing the purchase of residential or commercial property can be challenging. Recently, the financial fallout from the coronavirus (COVID-19) pandemic has made financing a home or business even more difficult.

But just because money is tight, it does not mean you cannot make a real estate purchase.

Lease options can be one way of financing real property purchases during financially difficult times.

In today’s post we are going to take a closer look at lease options.

Caution: Lease Options are Not the Same as Lease Purchase Agreements.

A word of caution before we get started.

People often use “lease options” and “lease purchase agreements” interchangeably. However, they are two distinct lease agreements.

The lease option (as we will discuss below) is a contract that allows the tenant to lease a property for a set period of time with the option to buy the property at the end of that specific time period. It does not obligate the tenant to actually buy the property at the end of the term.

A lease purchase agreement, on the other hand, does obligate the tenant to purchase, and the seller to sell  the property at the end of the specified lease period.

Georgia regulates lease-purchase options by statute.

A lease purchase agreement consists of two separate documents:

  1. the lease of the property (for a specific time period), and
  2. the contract to purchase the property at the end of that time period.

The difference between a lease option and a lease purchase agreement is, therefore, that the lease purchase agreement obligates both the tenant to purchase and the seller to sell  at the end of the lease term – while the lease option does not.

With that stated, let’s now look at lease options.

What is a Lease Option?

A lease option is first and foremost, a contract between a landlord and a tenant to lease real property. It consists of two documents:

  1. the lease
  2. the option agreement (“option to purchase”)

The terms of the option agreement give the tenant the right (i.e., the “option”) to purchase the property at an agreed-upon price at a specified time. This can be either during the lease, at the end of the lease, or at some other date specified in the option agreement.

In this type of agreement, the tenant pays a deposit at the outset of the lease term which secures his or her right to buy the property at the end of the lease term (or some other specified date).

In other words, the tenant purchases an “option” which gives him the exclusive right to purchase the property (i.e., “exercise the option”)—if at the end of the specified term he wants to buy it.

Some agreements allow for the monthly rent or some portion of the monthly rent to be applied towards the purchase price of the property.

In a lease option, while the tenant has the right to buy the property at the end of the term, he is not obligated to buy it.

There are advantages and disadvantages to entering into a lease option for both landlords and tenants. If you are considering a lease option, speak with experienced real property counsel.

 Our Experience is Your Advantage.

At the Law Offices of Mark Weinstein, P.C., our clients benefit from our experience. We have extensive experience in real estate law. We have offices in Cumming, and we serve clients in Atlanta, Gainesville, Gwinnett County, Bartow County, Hall County, Henry County, Cherokee County, Clayton County, Cobb County, and other counties throughout Georgia. To find out what we can do for you, call us today at: 770-888-7707. Or you can e-mail us with inquiries at: lawofficesofmarkweinstein@gmail.com

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