Options, lease-options, and rights of first refusal

Three different purchase rights

An option gives the optionee the right, but not the obligation, to buy identified property on specified terms within a stated time. The owner granting it is the optionor. Consideration supports the owner's promise to keep that opportunity open. Before exercise, the option arrangement is commonly called unilateral: the owner is bound to sell if the option is properly exercised, but the holder has not promised to buy. Proper exercise creates a binding purchase contract. It does not itself transfer title.

A real estate purchase option should be in a signed writing identifying the property, price or a definite way to determine it, duration, and exercise requirements. Distinguish the option fee from an earnest money deposit under a purchase contract. Whether the fee is credited toward the price or refundable depends on the agreement. Read the actual agreement carefully; exercise methods, deadlines, credits, and default consequences differ.

Lease plus option

A lease-option combines a tenancy with a purchase choice. The tenant pays rent and performs the lease while deciding whether to exercise the option. A lease-purchase instead obligates the tenant to buy under its purchase terms. Paying rent or moving in does not, by itself, exercise a purchase option. Rent credits apply only as agreed. The lease and option can have different expiration dates, and a lease renewal does not necessarily extend the purchase option.

For example, an option price is $500,000. The agreement credits a $5,000 option fee and $200 from each of 12 qualifying monthly rent payments. The rent credit is 12 times $200, or $2,400. Total credits are $7,400, leaving $492,600 of the price before financing and closing adjustments. The full rent is not a purchase credit.

Priority rather than an immediate choice

A right of first refusal gives its holder priority to buy if the owner decides to sell under the event defined in the agreement, commonly an acceptable third-party offer. It usually requires matching the specified transaction terms within a response period. Until that trigger occurs, the holder cannot simply force a sale. An option, by contrast, can be exercised during its term without waiting for the owner to seek another buyer.

California translation protection

California requires a business negotiating a covered residential tenancy longer than one month primarily in Spanish, Chinese, Tagalog, Vietnamese, or Korean to deliver the required translation before execution. This can matter when arranging a residential lease-option. The tenant's own qualifying independent interpreter can create an exception. An interpreter furnished by the landlord does not meet that exception. These are translation protections, not a rule turning a lease-option into a mandatory purchase.