In a lease agreement, what is a "purchase option"?

A "purchase option" in a lease agreement refers to a provision that allows the lessee the opportunity to buy the leased asset at a predetermined price. This option is typically exercised toward the end of the lease term and provides the lessee with the right to purchase the asset rather than returning it. Having such a clause can be beneficial for the lessee if they find the asset valuable and wish to retain ownership after the lease period concludes.

The concept of a purchase option is significant in leasing arrangements as it offers flexibility for the lessee and can influence the decisions they make during and after the lease. This option makes the financial commitment more appealing, knowing that there is a potential avenue to acquire the asset outright if they choose to do so.

In contrast, the other options do not hold the same definition or implications regarding purchase rights in leasing contexts. Prohibitions against asset sales relate to restrictions placed on the lessee, fees for early lease termination involve penalties, and options for the lessor to buy back the asset pertain to the lessor's rights rather than the lessee’s potential to acquire the asset.