Lease to Own a Domain Name

I was giving advice to someone today about buying a domain name that is currently generating significant parking revenue. The owner is using a min-site with Adsense to generate this revenue (we’ll say $5,000 annually for the sake of this post), and the potential buyer thinks he could earn much more if he develops it further. The owner’s asking price is steeper than the buyer is willing to spend (let’s say $100,000), but I think the   buyer can get creative with his offer in an effort to strike a deal.
In a situation like this, I think a lease-to-own offer would be a smart way to negotiate to buy the domain name. I advised the potential buyer that it might make sense to offer the owner $7,500/year for 3 years with a $100,000 option to buy in year 4. I would imagine this would placate the owner because he will eventually realize his asking price, and he will also earn 50% more revenue for the next 3 years. The buyer would then have 3 years to try and monetize it better to justify the asking price. If he fails after a year, he can revert to the owner’s parking strategy and lose just $5,000 in years 2 and 3, as the name would earn $10,000 and he is on the hook for $15,000. If he had originally agreed to the asking price, he would be out $100,000.
I haven’t had the opportunity to use this negotiation tactic before, but I have another friend who had success with this. His main product name in the .com was owned by a domain investor, and he owned and operated the .net for several years. The owner of the .com wouldn’t sell for a “reasonable” price, so my friend offered him a 10 year lease with an option to buy. Sure, nobody can speculate on where things will stand in 10 years, but assuming we are still using domain names, he won’t have to worry about losing traffic any longer. It worked well for both parties in this situation, and I think that is the key.
For a lease to own offer to work, it has to be financially beneficial to all parties, especially the owner. The buyer gets to “try out” the name for the term of the lease, and the owner will generate more revenue than had he kept it parked. If the buyer doesn’t follow through after the lease is up, the owner will realize the buyer’s goodwill and traffic from the term of the lease.
One thing to keep in mind if a potential buyer approaches you with this is that you may want to consider adding restrictions to what the buyer can display on the website during the term of the lease. Child porn, illegal drug sales or illegal downloads could actually harm the value of the name, and if a policing agency would see the owner’s name on the Whois, the owner could potentially be blamed for the site. It’s just something to keep in mind. Aside from that, I think this is a good negotiation tactic.

Elliot Silver
Elliot Silver
About The Author: Elliot Silver is an Internet entrepreneur and publisher of Elliot is also the founder and President of Top Notch Domains, LLC, a company that has closed eight figures in deals. Please read the Terms of Use page for additional information about the publisher, website comment policy, disclosures, and conflicts of interest. Reach out to Elliot: Twitter | Facebook | LinkedIn
  1. an interesting concept…if bought outright he wouldnt loose 100k , it would still have some value…

    I may try this with one I’ve been salavating over….it’s pricey but it would rocket me in my niche.

    Good point – you wouldn’t lose all value.

  2. I did just such a three-year lease-option deal a few years ago on the geo .com I’m now developing. Thankfully; given the great geo information and success the Castello brothers generously shared w/us all in that DN Journal article of a couple years ago, and the work of Associated Cities and their members (which woke me up to this geo’s true value and potential); this company didn’t complete the purchase.
    In addition to Elliot’s wise recommendation concerning no adult content (which I had in my agreement), I’d recommend that–as is the case in most lease-options written in the real estate world–the buyer be able to end the agreement whenever they want to; not just at the end of the term.
    Someone who knows what they’re doing and is willing to work hard, and quickly; should know w/in the first year or so whether or not they should continue on.
    In addition, I included in our agreement a “price step-up” provision, whereby the purchase price was higher in year two than year one, and higher still in year three than year two.
    The best approach for most would probably be to have their favorite realty agent pick up a copy of a/the standard lease-option agreement from their local board of realtors/ MLS service.
    And though I didn’t do so given my realty & business background, I’d strongly recommend that both parties have their respective attorneys review the agreement.
    Lease options; much more so than regular “buy it now” sales; are fraught with danger. Better to spend 1-2k now on legal help than find yourselves in court later.

  3. The biggest difference between domains and real estate is the ability to establish a claim on the title. With real estate, your claim on the title is honored according to long established laws and institutions. However, if a domain owner goes bankrupt, all bets are off with respect to getting the title to the domain.
    This lease-option technique is definitely useful in the domain world, but it’s not without risk. If you’re planning to spend major money on development, you should buy the domain.

  4. I think Alex has brought up a very valid point that is often neglected by the entity leasing. If the domain owner, is sued, forgets to pay, etc the personal leasing is in dire straits. I have seen instances whereby in a martial dispute domains were locked by a spouse!
    Leasing is an area I would suggest to proceed with caution and with an attorney.

  5. good points by all…maybe a purchase/payment plan would be less risky than a lease?
    I have 2 domains I’m about to put up as live sites with forsale on them but with an offer to finance the purchase.
    any idea about this?

  6. Tim, I’ve done financed sales before. Though not to the same degree as lease-options, there are additional risks here as well.
    As with drawing up lease-options for domains, I recommend having a realty agent pick you up whatever seller-financing forms are available from your area MLS/ Board of Realtors and using those provisions applicable to your situation/s; then having an attorney review it (the well-known domain/ IP industry attorneys should be good choices, and may in fact already have “standard” forms for such sales).
    The most important point: DO NOT transfer them until all funds have been paid and cleared your bank.
    Sorry I can’t offer the forms I use for financed and lease-option sales, but; while O.K. for my own deals as I’m acting as a principle in the transactions; suppling them to others could be construed as practicing law; which I am not licensed to do.

  7. Also, to save money, you can go ahead and offer the basic terms you’re willing to sell under (i.e. price, down payment, payments, interest rate if any, length of term, etc), but wait to draw the actual written agreement itself if and until you get a buyer for the domains.

  8. I have used lease to own strategies quite successfully, but in my case the legal term I use in my contracts is license, since the use-then-purchase party needs full access to use of the domain name, in marketing, product labeling, etc. prior to executing the option to purchase. This makes sense when you think about it from the broader perspective of fair use in the marketplace.

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