Mastering the Lease-Option Memorandum

What is a Lease-Option Agreement?

A Lease-Option combines two distinct legal instruments: a standard Residential Lease Agreement governing monthly occupancy and a unilateral Purchase Option Agreement granting the tenant-buyer the exclusive right (but not obligation) to buy the home at an agreed strike price within a specified timeframe (typically 12 to 36 months).

Option Consideration Fee vs. Security Deposit

Unlike a security deposit, an Option Fee is upfront consideration paid directly to the seller/investor for locking in the purchase option. Key characteristics include:

• Non-Refundability: The option fee is non-refundable if the tenant-buyer defaults or chooses not to exercise.
• Purchase Credit: 100% of the option fee is applied directly toward reducing the purchase price at closing.
• Rent Credits: Portions of on-time monthly payments can be credited toward the buyer's down payment at closing.

Memorandum of Option Recording

To prevent a seller from conveying or encumbering the property during the option period, a "Memorandum of Option" is executed and recorded with the County Register of Deeds. This puts the public on notice and creates a cloud on title that secures the tenant-buyer's equitable interest.