Real Estate Terms
What Is a Lease Option?
A lease option — also called rent-to-own — is a contract combining a standard lease with an option to purchase the property. The tenant pays an option fee for the right to buy at a specified price within a set period. If they exercise the option, they purchase. If not, they lose the option fee and the right to buy.
Lease Option vs. Lease Purchase
Lease Option
Tenant has the RIGHT but NOT the obligation to purchase. If they choose not to buy at the end of the option period, they walk away (and lose the option fee). The purchase is optional.
Lease Purchase
Tenant is OBLIGATED to purchase at the end of the lease term. Both parties are contractually bound to complete the sale. This distinction is frequently tested on the real estate exam.
Key Components of a Lease Option
Option fee: upfront payment for the right to purchase (typically non-refundable)
Option period: the time window during which the option can be exercised
Purchase price: agreed upon upfront (locks in the price regardless of market changes)
Rent credits: some agreements credit a portion of rent toward the purchase price
Standard lease terms: rent amount, maintenance responsibilities, lease duration
Real Estate Exam Key Points
Lease option: right but NOT obligation to purchase
Lease purchase: obligation to purchase — both parties bound to the sale
Option fee is typically non-refundable if buyer doesn't exercise the option
Option must be exercised within the option period or it expires
Rent credits toward purchase price are negotiable — check the contract
Seller retains title throughout — buyer gets possession under the lease
Definition Page Pillars
Use this term page as a concept layer, then return to pillar pages for full workflow review.