California Real Estate Practice Exam

What happens to an option in a lease when the lease is assigned?

1. It becomes invalid

2. It is valid only if recorded

3. It passes with the assignment, even if not mentioned

4. None of the above

The correct answer is: It becomes invalid

In a lease agreement, an option to purchase or an option to extend the lease typically remains valid even if the lease is assigned to another party. This is because options are generally considered part of the lease agreement itself, and they "run with the land," meaning they are not automatically invalidated by the assignment of the lease. The key concept here is that an option, as a contractual right, is associated with the lease rather than the original lessee. When a lease is assigned, the rights and obligations under the lease, including any options, are usually transferred to the new tenant. Therefore, the correct understanding is that the option passes with the assignment, even if it is not explicitly mentioned. This means the new tenant can still exercise the option as if they were the original tenant. The incorrect answer suggests that the option becomes invalid upon assignment, which contradicts the principle that contractual rights associated with a lease typically endure through transfers of the lease itself.