What’s A Lease Option
What’s A Lease Option?
A lease option is an abbreviation for ‘lease with an option to purchase’ or ‘lease
with an option to buy.’
When you purchase an investment property and have a mortgage on it, instead
of just letting your property to a tenant, you also give your tenant the right to
buy the property by granting an option to purchase.
With a lease option the buyer pays an agreed upfront option fee that gives that
person the right to buy should the option be taken up within the specified time
The buyer can exercise their option to purchase at any time during their option
period in accordance with the term of the option. The option period runs exactly
over the same time as the lease that has been set up alongside it.
The paperwork used in a lease, or to be precise, an Assured Shorthold Tenancy
Agreement (AST) combined with a separate document called an Option
For simplicity this course is written from the prospective that you are the seller
(vendor) who is providing vendor terms to sell to a new buyer.
Technically, when you sell using a lease option your new buyer is actually a
tenant/buyer until they exercise their option to buy.
When I talk about a deposit, I am using it in the context of a purchase deposit,
and not a rental deposit. The characteristics of the deposit, or option fee, are,
more like that of a purchase. So you should be careful with the language you
choose, otherwise your buyer may be expecting only to pay something like one
month’s rent as their option fee.
The lease option buyer has the opportunity to live in the house and choose
whether or not to exercise their option to buy. They get to ‘try before they buy.’
The buyer’s commitment to buy isn’t firm until they exercise their option to buy.
In a lease option, the seller will apply the option fee towards the purchase of the
However, unlike a traditional rental deposit, the