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Bargain Purchase Option

By on August 30, 2019

A bargain purchase option is a right to buy which a lessee can exercise at the end of the lease to buy a property at a price significantly lower than fair market value.

The property involved can be either personal property or real property. It can even be equipment and heavy machinery.

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This is very similar to a lease-to-buy contract where sellers allow potential buyer to “try” the property, and only complete the purchase if it’s satisfactory and meets their expectations.

In some ways, hire purchase agreements which are common with factory and office equipment are very similar. It helps the buyers see if they could get a return on investment before taking the plunge.

However, the lease contracts containing bargain purchase options are seen by many as a form of seller-financing in disguise as the full picture of an exercised option can seem like a seller financing the buyer during the period of the lease.

When relevant authorities classify such transactions this way, there can be tax implications.

So do check with your accountant on this when filing taxes.



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