It is an agreement between a renter and a landlord in which the renter signs a lease with an option to purchase the property. The option only binds the seller; the tenant has a choice to make a purchase or not.
Lease options are common among buyers who would like to own a home but do not have enough money for the down payment and closing costs. A lease option may also be attractive to tenants who are working to improve bad credit before approaching a lender for a home loan.
A lease option also may be a way for the seller to move property in a slow market. Seller advantages include earning above-market rent, retaining all the property income tax deductions during the lease-option period, and attracting tenants who will care for the property as though they own it.