Bargain renewal option definition

What is a Bargain Renewal Option?

A bargain renewal option is a clause in a lease agreement that gives the lessee the option to extend the term of the lease at a rate that is substantially lower than the going market rate. Many lessees who want to remain in their leased premises for an extended period of time will negotiate for a bargain renewal option. This can also be an attractive option for landlords, who can use it to be assured of extended tenancy in their properties.

When this clause is present and it is likely that the lessee will trigger the clause, the lessee accounts for the lease as a finance lease.

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