Similar to a car lease, domain leasing gives a buyer (lessee) the right to temporarily use a domain name over a specified time period while making periodic lease payments to the seller (lessor). Most domain lease transactions have some option for the lessee to buy the domain name outright, either within the lease period or at the end of the lease term. Buyers can lease domain names to get access to premium (high value) names without the high upfront costs of normal sales.
Typical Terms of a Domain Lease
The following are common terms of domain leasing:
Domain leases are usually between 2 years – 10 years in length. Monthly or quarterly payments are standard.
Some Lessors demand that the lessee pay a non-refundable down payment at the start of the lease.
Lease Payment Amount:
The periodic payment amount for leasing the domain.
Most domain name leases have some sort of purchase option (lease option) allowing the lessee to buy the domain name by paying the lessor a predetermined sum. Domain Leasing can include the option to purchase the domain within the lease period, at the end of the lease period, or both.
Sarah wants to buy the premium domain name Example.com to start a new business. Historically Example.com earned an average of $250 a month from parking. Sarah and George (the owner of Example.com) agree on a sale price of $60,000 but Sarah doesn’t have the cash to buy the domain. Sarah and George then agree to a domain lease containing the following terms:
Domain Lease Period: 3 years (36 months)
Down Payment: $0.00
Lease Payment Amount: $500
Let’s examine the benefits of domain leasing to buyers and sellers using the above example:
Sarah is able to fully use the domain to start her business. Sarah develops the domain with a great website filled with original content. She also invests in marketing and promotion for the site.
Easier than financing:
Because the terms of the domain name lease are created directly by the seller and buyer, Sarah avoids the hassles and high costs of domain financing. If Sarah had to take out a traditional domain loan she would have had to put down $24,000. It would also cost her 15%-25% annual interest.
Option to buy:
Sarah has the opportunity to buy the name at anytime for $75,000. She can exercise this option anytime within the lease period.
George greatly increases his chances of a successful sale, something he has been trying to do for several years. He will potentially be able to get way above his asking price ($75,000 instead of his $60,000 asking price).
Earn high lease payments:
While George waits for Sarah to buy the domain he collects a monthly lease payment of $500. That is 200% higher than the historical monthly earnings from parking ($250).
Increased domain value:
During the lease period the domain’s value increases as Sarah builds a great site that gets traffic, search engine rankings, links, and PageRank. If Sarah defaults or decides not to buy the domain, George will get it back and retain all previous payments.
Domain Leasing Issues
There are, however, security concerns from both parties regarding the domain name leasing:
Buyers are concerned about the seller disrupting the transaction (canceling it or changing the DNS settings) during the lease term.
Sellers are generally concerned with how the buyer uses the domain while they make monthly payments. The buyer can do a number of things to devalue the domain including unauthorized use of trademark or copyright material, using the domain for any illegal purpose, using the domain for SPAM, or conducting “Black-hat” SEO techniques.