Scholasticus (2010) indicated that there are several different types of contracts that can come into existence. A lease is one such contract that people commonly use to rent out real estate and even assets. When it comes to leasing a real estate, there are several types of possible contracts. In the following paragraphs, the meaning of lease and lease option contract has been explained along with some essential definitions.
A lease contract is an umbrella term that identifies a long standing contract over a real (material) asset. A lease is not restricted to the real estate. Common contract law provides it to be a rental agreement where an asset is rented out to a lessee for a period of time, in consideration for a sum of money paid in bulk or instalments to the lessor/owner of the asset. A lease agreement is, thus, said to be the primary contract of rental transactions. During the course of business, there many tailored lease contracts that have been modulated, for the sake of convenience. A lease option agreement is a popular variant of such contracts.
A lease option contract is any agreement that provides the lessee an option to buy the asset that is being leased out at a later stage. The lease option is basically a kind of right to purchase that is sold by the lessor to the lessee. When a lessor rents out an asset to a lessee, a contract of lease is signed between the two parties. Now, as per a normal lease contract, a lessor rents out an asset to the lessee and is paid consideration on a periodic basis. At the end of the period of the lease, the asset is handed back to the lessor. In a sample lease option contract, the difference between the lease option and an ordinary lease are: the lease option contract contains a clause which enables the lessee to purchase an option; an option is basically a right that empowers the lessee to purchase the asset at the end of the lease period. Alternatively, the lessee may also not purchase the asset and might simply return it to the lessor. The option costs the lessee some money, which is often termed as option price. If the lessee pays the price and takes the option, then he is empowered with the right to purchase or not purchase at a later date. During economic recent recession, a considerable number of people, who were denied mortgage loans, entered into a residential lease option contracts. The advantage was that they not only have a house of their own but were also handed the right to purchase it upon the improvement of economic conditions. Thus, a residential lease option is often considered to be an alternative to conventional mortgage loans.
As mentioned above, a lease option contract is not only used in real estate but is also widely used by the corporate world. Companies that require very costly assets for their operations often resort to lease option contracts. It must be noted that the right ‘option’ is also used in different commercial agreements, such as shares of a company, cars, mutual funds, etc. Copyrights and patents can also become subjects of lease option contracts.
Reference
Scholasticus, K. (2010). Lease option contract. http://www.buzzle.com/articles/lease-option-contract.html
