Land Lease Option

What Is a Land Lease Option?

A land lease option is a clause in a real estate contract that gives the renter or lessee the right, yet not the obligation, to expand their utilization of a property past the term determined in the contract. Normally, the renter or lessee is required to pay a premium for the option, like a small amount of money in every year of the original contract.

One more term for this may be a lease extension.

A land lease option isn't equivalent to a lease to claim contract, which gives the lessee the right to purchase the property, as opposed to just broaden the lease.

A land lease option is likewise not equivalent to a lease purchase contract, which ties the two players to the sale of the property toward the finish of the contact period. With a land lease option, just the lessee has an option to act or not act.

How a Land Lease Option Works

Similarly as with all options contracts, the land lease option permits its holder to act on great future market conditions. The lessee might need an option for some reasons. In the event that the future market value of the land is dubious, an option will permit the lessee to expand a generally cheap lease in a rising price environment. For corporations, lease options permit them to reconsider operations in light of leased land from now on, before getting themselves into extremely long-term contracts.

Illustration of a Land Lease Option

In the event that the property owner leases their property to the lessee, they could consent to a $5,000 each month rate for a term of 10 years. In any case, in the event that the lessee accepts that real estate prices will rise over that period of time and further accepts they will require utilization of the property past the term of the contract, they could ask for a land lease option written into the contract. Along these lines, they realize that the property won't just be accessible however will cost a similar rate for an extra period of time.

The premium or extra fee for this option may be $200 each month for the 10-year period, carrying the total cost to $5,200 each month. On the off chance that the lessee practices the option toward the finish of the original 10-year term, the lease payment will stay at $5,000 each month.

The lessee dodges the risk of rethinking the contract in 10 years or even tracking down a comparative property to lease.

The property owner provides up the ability to charge more money later yet gets and extra $200 each month for 10-years, or $24,000, which is hypothetically over the going market rate.