What is a lease option in real estate?

A lease option in real estate is effectively a rental agreement that includes a provision for the tenant to purchase the property at a later date. This arrangement allows a tenant to rent a property for a specified period while also giving them the right to buy the property during or at the end of the lease term. This can be beneficial for both the tenant and the landlord; tenants have time to secure financing or improve their credit while having a clear path to ownership, and landlords maintain rental income while enhancing the property's appeal to potential buyers.

The other choices do not accurately capture the essence of a lease option. A direct sale of the property to a buyer pertains solely to the transfer of ownership without any rental component. A month-to-month rental agreement lacks the structured follow-through on purchase options and is typically more flexible, often allowing for short-term rental without commitment to purchase. Meanwhile, a standard lease without any purchase options does not provide the tenant with an option to buy, which is a defining feature of a lease option. Thus, the correct choice underscores the dual nature of a lease option—serving as both a rental agreement and a potential sales contract.