What is a lease option?

A lease option is a rental agreement with a purchase right built into it. The tenant lives in the home as a renter for an agreed term, and at the end of that term holds the option to buy the property. The key word is option: the tenant can buy, but is not required to. If they decide not to proceed, they walk away and the lease ends, subject to the terms they signed.

The purchase right is usually set out in a separate option agreement, often with an upfront option fee paid to the owner and a rent premium on top of market rent. Some agreements credit part of the rent toward the eventual purchase price, and others do not. The terms vary from one contract to the next, which is why the written agreement matters more than general descriptions of the arrangement.

Lease options matter because they give buyers time. A tenant who needs to repair credit, save a down payment, or wait for a mortgage to become available can live in the home while working toward a purchase. For sellers, the arrangement can widen the pool of buyers and bring in steady rent while the sale is pending.

In Ontario, lease options are sometimes called rent to own. Because the arrangement mixes a tenancy with a sale, it involves both residential tenancy and real estate considerations, so buyers and sellers usually confirm the details with a lawyer before signing. You can find providers that list lease option homes in our lease option homes category.

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