How Rent to Own Homes Work in Ontario

Rent-to-own homes are an alternative to traditional home buying.

According to RBC Economics, housing affordability in Canada has hit a 32-year low, with Toronto, Vancouver, and Victoria being the hardest hit by the increase in housing prices. With the prices of housing sharply increasing in recent years, it has become difficult for average Canadians to afford a home, especially when mortgage lenders have tightened their criteria. Rent-to-own homes provide a way for buyers to move into a house before they save a downpayment and quality for a mortgage.

This article will focus on how rent-to-own homes work in Ontario, including the legal requirements and potential benefits and pitfalls. If you are struggling with home affordability, learning about this alternative option may be advantageous.

What are Rent to Own Homes in Ontario?

Rent-to-own is a program that allows potential buyers to rent a property, with a portion of the monthly rent going towards the down payment if they decide to buy the property later. It helps homebuyers, particularly those who have poor credit or issues coming up with a substantial down payment, gain access to homeownership.

One advantage of the rent-to-own program is that it offers more flexibility than traditional purchasing methods, with some programs allowing renters to move in quickly, and payments and terms can be adjusted to suit each party’s needs. If the renter decides not to purchase the property by the end of the agreed-upon period, they can walk away, potentially without any penalty. However, as with any financial contract, it is important to understand the terms and rules involved thoroughly before signing.

Rent-To-Own Ontario Laws

In Ontario, rent-to-own agreements are governed by two contracts between the buyer and the landlord: the rent-to-own "option to purchase" agreement and the "lease agreement." Both contracts must be signed before the buyer can gain access to the property. The lease agreement covers the renting portion of the program and outlines the length of time the buyer will be leasing the property, while the option to purchase agreement allows the buyer the opportunity to purchase the property at a later date.

The Government of Ontario requires Rent-to-Own homes to use the province's standard lease template. The option to purchase agreement is separate and is typically attached to the rent-to-own contract. If the landlord does not use Ontario's standard lease template, the lease is still legally valid, but the landlord must provide the standard template within 30 days of the tenant asking for the template.

LegalDeeds is an online document provider that can write Rent to Own agreements in Ontario. LegalDeeds will send you a lease option agreement and a lease. In Ontario, only the lease option agreement must be signed. The lease must use the province's standard lease agreement.

Risks With Rent-To-Own Homes

There are also some particular concerns that the buyer needs to be aware of, such as:

Losing the down payment and equity built up in the property if the renter ultimately decides not to purchase the property.
Limited control over the property, especially in terms of property modifications while renting it.
The potential of being scammed by unscrupulous landlords demanding high upfront costs or requesting rent-to-own payments without explaining the agreement's terms and conditions.

Housing Affordability

Rent-to-own work in Ontario to tackle housing affordability by helping renters become homeowners. Yet, not many properties are available for sale under Rent-to-Own programs in 2023.