California Real Estate Practice Exam

If an option exists in a lease, what generally happens if the lease is assigned to another party?

1. It becomes void

2. It remains with the original lessee

3. It transfers with the lease

4. It must be renegotiated

The correct answer is: It becomes void

When an option exists in a lease, such as an option to renew or purchase, the treatment of that option upon assignment of the lease depends on the specific terms outlined in the lease agreement and applicable laws. Typically, if the lease is assigned to another party, the option will transfer with the lease, allowing the new lessee the same rights as the original tenant. In many cases, the option to renew or to purchase does not automatically become void when a lease is assigned. Instead, it remains a vested right that can be exercised by the new lessee unless the lease specifically states otherwise or if the landlord restricts the transfer of options in the lease terms. Therefore, the correct understanding is that the option generally transfers with the lease, granting the assignee the ability to exercise that option as well. This context emphasizes the importance of reviewing the lease agreement closely to understand the rights and obligations related to options during an assignment.