CRE 101 · deweyluong.realtor

Purchase Option Explained: How a Georgia Commercial Tenant Locks In the Right to Buy — and What the Fixed Price Really Costs Both Sides

A purchase option gives a commercial tenant the right, but not the obligation, to buy the building at a price or formula set when the lease is signed, during a stated window, if the tenant exercises in writing on time and is not in default. On the made-up example on this page, a 5,000-square-foot Georgia tenant at $24.00 per square foot pays $120,000 a year in rent, pays $25,000 of option consideration, and locks a $1,300,000 fixed price: if value rises to $1,550,000 the tenant buys $280,000 below market after its rent credit, and if value falls to $1,150,000 the tenant walks away and loses only the $25,000. By Túy “Dewey” Luong, CCIM — Founding Broker, SERHANT. Atlanta · 318 closed sales / $281.2M career volume · 678-707-2498 · dewey.luong@serhant.com · https://deweyluong.realtor

The worked example uses a made-up tenant, building, and prices so every figure can be checked by hand. Real options turn on the exact words signed. This page is general education only, not legal advice — have your attorney review any purchase option before signing.

What a purchase option is

• A right, not an obligation: the tenant may buy on the option terms during the window. If the tenant never exercises, there is no sale and no breach — the right simply expires. That is the opposite of a lease-purchase, where the tenant has already committed to buy on a set date and walking away is a default.
• Different from a right of first refusal: a right of first refusal waits for a third-party offer and lets the tenant match it. A purchase option needs no outside offer and no owner's decision to sell — the price mechanism and the window were settled at signing, and a timely exercise creates the sale.
• The landlord is bound, the tenant is not: once granted for consideration, the owner cannot sell the optioned property free of the option during its term, and cannot raise the option price because the market moved. The tenant's only money at risk before exercise is the consideration and any premium built into the rent.
• Common for owner-occupants: the classic user is a business that wants to test a location, build value in it, and own it later — a restaurant, medical office, or retailer that would rather buy its own building than move, the same decision priced in the lease vs buy lesson.

The four terms that decide what the option is worth

• The price mechanism: a fixed price, a fixed price with scheduled increases, a formula, or fair market value set by appraisal at exercise. This one term decides who keeps the appreciation, and it is worth more than every other term combined.
• The window: when the option may be exercised — anytime during the term, only in a stated period, or only at the end — and the exact notice deadline. Options are enforced strictly: a notice one day late is usually no notice at all.
• The consideration: the money paid for the right itself, separate from rent. Whether it is refundable (almost never), and whether it is credited against the price at closing, are negotiated points, not assumptions.
• The conditions: most options require that the tenant not be in default when it exercises and when it closes, that the lease still be in effect, and that exercise be in writing to a stated address by a stated method. A default the tenant does not know about can kill a valuable option.

The worked example, part one: the deal at signing

• The tenant and the rent: a made-up Georgia business leases 5,000 square feet at $24.00 per square foot. Rent is 5,000 × $24.00 = $120,000 a year — $10,000 a month — on a five-year term.
• The building's value at signing: $1,250,000, or $250 per square foot. Both sides know today's number. What neither side knows is the value in year five, and the option is a bet on that gap.
• The fixed option price: $1,300,000, or $260 per square foot, exercisable during the last twelve months of the term. The owner priced in a modest increase over today's value and gave up everything above it.
• The consideration and the rent credit: the tenant pays $25,000 of option consideration at signing, nonrefundable, credited against the price if it exercises. The lease also credits $500 a month of rent — $6,000 a year, $30,000 over the sixty months — against the price, only if the option is exercised. Total credits at exercise are $25,000 + $30,000 = $55,000, so cash due at closing is $1,300,000 − $55,000 = $1,245,000, and the tenant's total purchase cash, counting the $25,000 already paid, is $1,245,000 + $25,000 = $1,270,000.

The worked example, part two: the market rises, the market falls, and the appraisal alternative

• Value rises to $1,550,000: $310 per square foot. The tenant exercises. Against the headline price the discount is $1,550,000 − $1,300,000 = $250,000, and after the $30,000 rent credit the tenant's total purchase cash of $1,270,000 sits $1,550,000 − $1,270,000 = $280,000 below market. The fixed price transferred the appreciation above $1,300,000 to the tenant.
• Value falls to $1,150,000: $230 per square foot. The fixed price is now $1,300,000 − $1,150,000 = $150,000 above market. The tenant does not exercise, the option expires, and the loss is the $25,000 consideration — the $30,000 of rent credits vanish with the unexercised option, because they were only ever a closing credit. The right to walk away is exactly what the $25,000 bought.
• The fair-market-value alternative: had the price been fair market value at exercise, two appraisals of $1,500,000 and $1,600,000 would average to $1,550,000 — the same $1,550,000 — and the tenant would pay full market for a building it must still compete to finance and close. An FMV option is a right to buy without competition, not a discount. It protects against being outbid or displaced, and it gives the owner the appreciation.
• Read the three outcomes together: the fixed price gave the tenant $280,000 of value in the up case and cost $25,000 in the down case. That asymmetry — capped cost, open upside — is the whole economic point of an option, and it is why owners charge consideration and premium rent for one.

How the price gets set: four mechanisms

• Fixed price: the worked example's structure. Cleanest to exercise, hardest to negotiate, and the only mechanism that locks a discount if the market runs. Owners resist it in rising markets for exactly that reason.
• Fixed price with scheduled increases: the strike rises by a stated amount or percentage on stated dates. The tenant still knows its number years ahead; the owner keeps a defined share of expected growth.
• Formula price: a multiple of rent, a cap rate applied to stated income, or an index adjustment. Formulas settle the method, not the number — read what income, cap rate, and date the formula uses, because those inputs decide the price.
• Fair market value by appraisal: each side appoints an appraiser; if the two values diverge beyond a stated band, a third appraiser decides or the two are averaged, as in the $1,500,000 and $1,600,000 example above. Negotiate who qualifies as an appraiser, the valuation date, and whether the value assumes the lease or the building vacant — the same building prices differently under each instruction, a distinction the BOV vs appraisal lesson works through.

Exercising: the mechanics that decide whether the right survives

• Written notice, exactly as stated: deliver the exercise notice to the address, by the method, and before the deadline the option states. Keep proof of delivery. Courts generally hold option deadlines strictly, because the owner planned around a date certain.
• No default, at exercise and at closing: cure every open default before noticing, and stay current through closing. A tenant exercising a $280,000 advantage while behind on rent has handed the owner its defense.
• Exercise creates the purchase contract: the option terms, plus any purchase terms the lease attaches, become the sale. Closing date, earnest money, title, and due diligence rights after exercise should all be written at signing, not negotiated after exercise when the tenant has no leverage left.
• Financing is the tenant's problem: an option is not a loan commitment. A tenant that will need a loan to close should line up its lender well before the window opens — an exercised option with a failed closing can forfeit earnest money and the relationship, and the consideration is already gone.
• Record a memorandum: a short recorded memorandum of the option puts later buyers and lenders on notice without publishing the whole lease. An unrecorded option can be at risk if the owner sells to a buyer without notice — ask the attorney about recording at signing, not at exercise.

Why owners grant options, and what they charge for them

• The owner's return: nonrefundable consideration now, often above-market rent during the term, a tenant that maintains the building like a future owner, and a built-in buyer at a price the owner accepted in advance.
• The owner's cost: the upside above the strike is capped for the whole window — $250,000 of headline appreciation in the worked example — and the option clouds a sale or refinance, because a new buyer or lender takes the property subject to it.
• Lender and sale friction: an owner's existing lender may need to consent, and an owner who wants to sell during the window will usually have to sell subject to the option or negotiate its release. Expect the owner to price that friction into the consideration.
• Assignment limits: owners commonly make the option personal to the original tenant, ending it on an assignment of the lease. A tenant building a business it may sell should negotiate the option to survive a sale of the business — otherwise the most valuable asset in the lease can die at the exit.

Negotiate it at signing: a five-step sequence

• Step 1 — decide which right you actually need: a fixed-price option, an FMV option, a right of first refusal, or a simple lease-purchase commitment are four different instruments. Paying option consideration for an FMV right when you needed price protection is the common, expensive mix-up.
• Step 2 — price the option like an investment: put your own up, flat, and down values next to the strike before signing. In the worked example that is $280,000 of benefit against $25,000 at risk — a ratio worth paying for. If your down case is the likely case, the same option is a donation.
• Step 3 — negotiate the credits in words: state whether the consideration is credited at closing and whether any rent is credited, month by month. In the worked example the credits were worth $55,000 at closing — $25,000 of consideration plus $30,000 of rent credits — and every dollar existed only because the lease said so.
• Step 4 — protect the exercise: a long window, a reminder-friendly deadline, notice by more than one method, a cure right before a default can block exercise, and a recorded memorandum. Then calendar the deadline the day the lease is signed.
• Step 5 — raise it in the letter of intent: price mechanism, window, consideration, and credits belong in the letter of intent, before drafting. An option asked for after the lease is negotiated is an option priced by a landlord who no longer needs to give it. Then have your attorney conform the final language.

Cho nhà đầu tư và chủ doanh nghiệp người Việt

Quyền chọn mua (purchase option) là quyền của người thuê thương mại được mua lại tòa nhà theo mức giá hoặc công thức đã chốt khi ký hợp đồng thuê, trong một khoảng thời gian quy định, mà không bắt buộc phải mua. Đây là điểm khác biệt cốt lõi so với thuê-mua (lease-purchase), nơi người thuê đã cam kết mua và việc không mua bị coi là vi phạm. Quyền chọn mua cũng khác quyền ưu tiên mua khi có người khác trả giá (right of first refusal): quyền chọn mua không cần có người mua bên ngoài và không cần chủ nhà quyết định bán — giá và thời hạn đã được thỏa thuận từ đầu, và khi người thuê gửi thông báo thực hiện đúng hạn, bằng văn bản, trong lúc không vi phạm hợp đồng, thì thương vụ mua bán được hình thành. Bốn điều khoản quyết định giá trị của quyền chọn là: cách xác định giá (giá cố định, giá cố định có tăng theo lịch, công thức, hay giá thị trường theo thẩm định), khoảng thời gian được thực hiện, khoản tiền mua quyền (option consideration) — thường không được hoàn lại và cần thỏa thuận rõ có được trừ vào giá mua hay không — và các điều kiện như không được đang vi phạm hợp đồng tại thời điểm thực hiện và tại thời điểm đóng hồ sơ.

Ví dụ minh họa của trang này: một doanh nghiệp ở Georgia thuê 5.000 foot vuông với giá $24,00 mỗi foot vuông, tức tiền thuê $120.000 mỗi năm hay $10.000 mỗi tháng, trong thời hạn năm năm. Giá trị tòa nhà khi ký là $1.250.000, tương đương $250 mỗi foot vuông. Giá mua cố định theo quyền chọn là $1.300.000, tương đương $260 mỗi foot vuông, được thực hiện trong mười hai tháng cuối của hợp đồng. Người thuê trả $25.000 tiền mua quyền khi ký, không được hoàn lại, nhưng được trừ vào giá nếu thực hiện quyền; hợp đồng cũng trừ $500 mỗi tháng tiền thuê — $6.000 mỗi năm, $30.000 trong sáu mươi tháng — vào giá mua, chỉ khi quyền được thực hiện. Tổng số được trừ là $55.000, nên tiền mặt phải trả khi đóng hồ sơ là $1.300.000 − $55.000 = $1.245.000, và tổng tiền mặt mua nhà tính cả $25.000 đã trả là $1.270.000. Nếu giá trị thị trường tăng lên $1.550.000, người thuê mua thấp hơn thị trường $280.000 sau khi tính khoản trừ tiền thuê. Nếu giá trị giảm xuống $1.150.000, giá cố định cao hơn thị trường $150.000, người thuê không thực hiện quyền, quyền hết hạn, và chỉ mất $25.000 tiền mua quyền — khả năng được phép rút lui chính là thứ mà khoản tiền đó đã mua. Nếu giá được xác định theo thẩm định giá thị trường, hai kết quả thẩm định $1.500.000 và $1.600.000 lấy trung bình là $1.550.000, và người thuê trả đúng giá thị trường: quyền đó chỉ bảo đảm được mua mà không bị tranh mua, chứ không tạo ra khoản giảm giá. Khi đàm phán, cần chốt rõ cơ chế giá, thời hạn, các khoản được trừ, điều kiện không vi phạm, cách gửi thông báo thực hiện, và nên hỏi luật sư về việc ghi nhận bản ghi nhớ quyền chọn (memorandum) để bảo vệ quyền khi chủ nhà bán cho người khác. Đây là thông tin giáo dục chung, không phải tư vấn pháp lý; hãy nhờ luật sư xem quyền chọn mua trước khi ký hợp đồng thuê.

Frequently asked questions

What is a purchase option in a commercial lease?

A purchase option is the tenant's right, but not obligation, to buy the leased property at a price or by a formula set when the lease is signed, exercised by written notice inside a stated window, usually only while the tenant is not in default. In the worked example on this page, a 5,000-square-foot Georgia tenant at $24.00 per square foot — $120,000 a year, $10,000 a month — holds a fixed $1,300,000 option price and pays $25,000 of nonrefundable consideration for the right. If the tenant never exercises, there is no sale and no breach; the right expires.

How is an option price set — fixed, formula, or appraised value?

By whichever mechanism the lease states. A fixed price locks the number at signing; a scheduled-increase or formula price settles the method in advance; a fair-market-value option sets the price by appraisal at exercise. In the worked example on this page the fixed price is $1,300,000 against a signing value of $1,250,000, while the appraised-value alternative — two appraisals of $1,500,000 and $1,600,000 averaged to $1,550,000 — would charge the tenant full market in the rising case. The mechanism, not the label, decides who keeps the appreciation.

What happens to the option consideration and rent credits if the tenant never buys?

The consideration is lost and the credits are never realized, because both exist only as part of an exercised purchase. In the worked example on this page, a tenant that walks away from a market that fell to $1,150,000 loses the $25,000 consideration, and the $500-a-month rent credit — $30,000 over the sixty months — disappears with the unexercised option. That capped $25,000 loss, against $280,000 of benefit in the rising case, is the asymmetry the tenant paid for.

How is a purchase option different from a right of first refusal and a lease-purchase?

A purchase option lets the tenant start the sale on a preset price mechanism during a window, with no outside offer needed. A right of first refusal only lets the tenant match a third-party offer the owner has decided to accept. A lease-purchase is not a right at all — it is a commitment to buy on a set date, and failing to close is a default. In the worked example on this page, the tenant holding the $1,300,000 fixed-price option can force a sale at that price in the window, can walk away for $25,000 if the market falls, and needs no other buyer's offer to act.

Quyền chọn mua (purchase option) là gì, và người thuê thương mại người Việt ở Georgia cần chú ý điều gì?

Quyền chọn mua là quyền, không phải nghĩa vụ, của người thuê được mua lại bất động sản theo giá hoặc công thức đã chốt khi ký hợp đồng, thực hiện bằng thông báo văn bản trong thời hạn quy định và thường chỉ khi không đang vi phạm hợp đồng. Trong ví dụ của trang này, người thuê 5.000 foot vuông giá $24,00 — tiền thuê $120.000 mỗi năm — giữ giá mua cố định $1.300.000 và trả $25.000 tiền mua quyền không hoàn lại; nếu thị trường tăng lên $1.550.000, người thuê mua thấp hơn thị trường $280.000 sau khoản trừ tiền thuê, còn nếu thị trường giảm xuống $1.150.000, người thuê không thực hiện quyền và chỉ mất $25.000. Đây là thông tin giáo dục chung, không phải tư vấn pháp lý.