What does 'lease option' entail?

A lease option is a specific type of lease agreement that provides the tenant not only the right to occupy the property but also an opportunity to purchase it at a later date, typically under agreed-upon terms. This arrangement is beneficial for both parties: the tenant can lock in a purchase price ahead of time while still having the flexibility to choose whether to buy the property later. This option can serve as a helpful strategy for those who may need time to gather financing or to test out the property before making a long-term commitment to purchase.

In contrast, the other options do not capture the essence of a lease option. A lease that only allows renting does not provide any purchase rights, while one that is renewable each year focuses solely on the lease terms rather than a potential purchase. A lease mentioning improved rental rates does not necessarily relate to the tenant's purchasing rights. Thus, the key aspect of a lease option is its dual nature: serving as both a lease and a potential sales agreement.