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Understanding a Lease Agreement

So you are interested in starting a real estate broker business but you need a refresher on some of the legal terms associated with the real estate industry. You have come to the right place to review the ins and outs of a lease option and a lease agreement. Unfortunately many people mistakenly assume that a lease agreement and a lease option are the same thing. If you are going to broker any real estate deals and be successful in your broker business then you should understand the difference between the two terms.

Lease Agreement

If you have ever rented an apartment or house in your life then must likely you had to sign a lease agreement. At the most basic level a lease agreement refers to the contractual agreement you entered into and signed when you applied for the rental unit. In this sense a lease agreement is a binding legal contract that must be adhered to. The two parties forming this legal contract are of course the person actually renting the dwelling to live in and the person renting out the dwelling. A typical lease agreement will include the standard terms and conditions for renting the apartment.

For instance, one of the biggest issues of a lease agreement for an apartment revolves around the length of the lease. The landlord will want to lock you into a contract for at least 6 months if not a year. On the other hand as a renter, you likely will want a lease that is month to month which offers you more flexibility. The length of the lease agreement is often negotiable and will have to be decided upon before signing the lease agreement.

The lease agreement will also include the monthly payment amount as well as the rules for renting the space. A lease agreement might preclude one from owning pets. Typically the lease agreement will outline the condition of the apartment and what appliances are included, if any. It will also cover who is responsible for paying for the gas, phone, electric etc.

Lease Option

A lease option is much different from a lease agreement. In fact, many times a lease option might be included in the actual lease agreement. Just as one might assume, a lease option grants the renter an option. In this case the option that the renter is granted is the option to actually buy the dwelling outright at some point in time.

For example, a renter might sign a lease agreement that includes a lease option to buy the house after 2 years of renting for a set price, say $150,000. Agreeing to this option does not mean one is obligated to buy the house after 2 years at the stated price. Rather the lease option serves as just thatFind Article, an option to buy the house according to the agreed upon terms.

It is not uncommon for renters to not exercise their lease option. If the housing market has taken a hit in the last two years then the lease option price of the house may not be competitive and the renter will be motivated to shop around for a better price.

Article Tags: Lease Agreement, Lease Option

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Adam Smith is an internet marketer for 10X Marketing. You can learn more about the real estate market and your potential cash flow from

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