What is a lease option agreement?

A lease option is a rental agreement that gives a tenant the choice to purchase the rented property during or at the end of the rental period. It also prevents the owner from offering the property for sale to anyone else.

When should I use a lease option agreement?

It is highly recommended to use a lease option agreement if you intend to lock in a purchase price for a rental property and prevent the landlord from selling the rental property to someone else during the term of the option.

What needs to be included in a lease option agreement?

If you search around the Internet, you will find leases and rental agreements that vary widely in terms of length, thoroughness, and format. Every state has different laws as to what must be included. However, more states agree that, at a minimum, the following items must be included: The name and address of all parties involved: For residential leases, the address for the tenants will normally be the address of the unit being occupied. The term of the agreement: Agreements may be for fixed terms, such as six months or one year, or they may be periodic, such as week to week or month to month. Rental payment terms: These terms include how often rent will be paid, the payment amount, where payments may be made, and the permitted payment methods (i.e. cash, check, card, direct deposit, money order, etc.). Deposits and fees: Deposits are normally refundable whereas fees are not. Landlords should always specify when charges are nonrefundable. Utilities and maintenance responsibilities: The agreement must be clear as to who is responsible for paying each utility and should explain the maintenance and repair obligations. Prohibited uses and activities: Tenants are prohibited from engaging in illegal activities on the premises. Termination: The manner of terminating the agreement differs depending on the type of tenancy, preferences of the parties, and state law requirements. The agreement should also specify remedies for the landlord in case the tenant holds over occupancy beyond the term of the agreement or abandons the unit early without paying for the remainder of the term. Disclosures: Each state has specific disclosure requirements that must be met prior to signing the lease. You can find your local rules on your city or county website or by contacting the office of your mayor, city manager, county administrator, or a locally licensed attorney.

What is the difference between a deposit and a fee?

In the context of property leasing, deposits are normally refundable while fees are nonrefundable one-time payments. Tenants must be notified if they are being charged a "deposit" that is nonrefundable. For instance, security deposits are meant to protect landlords against tenants not paying for any damage they cause. At the end of the tenancy, deductions may be made from the deposit as permitted by state law, and the remaining funds must be returned to the tenant. Examples of common fees include upfront fees for pets, administration costs, application processing, and cleaning fees.

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When to use a lease option agreement

To preserve the tenant's right to purchase the rental property
To indicate any rules that will apply throughout the lease
To provide specific disclosures as required by law or regulation
To have a written agreement defining the lease's most important terms

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Start with gathering basic information about the lease, including party information, when the agreement will begin and end, and rent and security deposit amounts. Also, now is a good time to address any special maintenance or repairs that will be needed for the unit. Consider using a rental application to collect this information from your potential tenant or subtenant.

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Always read your document thoroughly to ensure it contains everything you need and is free of errors. In any case, once you finish creating your document, you will be able to alter it as much as you like in Microsoft Word. However, if you do not need to make any changes, you can simply download the PDF version and have the parties sign the agreement.

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