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Summary: Rent-to-own lets you lease a home now and buy it later at a price usually fixed today, within one to three years. It pairs a lease under the Residential Tenancies Act, 2006 with a separate option to purchase and a non-refundable option fee of roughly 2–5%.
Rent-to-own gets described as a shortcut to ownership for buyers who cannot qualify for a mortgage yet. It can work, but the arrangement stacks a tenancy and a future purchase into one deal, and the fine print decides whether you build equity or lose your deposit. Knowing how the pieces fit together is the difference between a fair path and an expensive one.
What is a rent-to-own agreement?
A rent-to-own agreement lets a tenant rent a property with the contractual right to buy it before a set deadline, usually at a price agreed at the start. It is really two contracts working together: a residential lease and an option to purchase.
The lease governs your day-to-day tenancy. The option agreement sets the future purchase price, the deadline to buy, the option fee you pay up front, and how much of your rent is credited toward the eventual purchase. Because the price is often locked in early, a rising market can work in your favour, and a falling one against you.
Rent-to-own | Buying now with a mortgage | |
Upfront cost | Option fee, roughly 2–5% of price | Down payment, from 5% |
Ownership | Transfers only if you exercise the option | Transfers on closing |
Price certainty | Usually fixed at signing | Set by the market at purchase |
Main risk | Losing the option fee and rent credits | Carrying the mortgage |
How does a rent-to-own agreement work in Ontario?
In Ontario the arrangement runs through two written agreements, and the purchase only happens if you exercise your option before it expires. The typical sequence looks like this:
Agree on the purchase price and term. You and the owner set the future price and a window to buy, commonly one to three years.
Pay the option fee. This upfront payment, often 2–5% of the price, secures your right to buy. It is usually non-refundable and credited toward the purchase if you go ahead.
Sign the lease. You move in as a tenant, with the tenancy governed by the Residential Tenancies Act, 2006 (RTA), Ontario's residential rental law.
Pay rent, part of it credited. Rent is often above market, with a set portion recorded as a rent credit toward your future down payment.
Arrange financing and close. Before the deadline, you apply for a mortgage and complete the purchase like any other closing, registering the transfer of title.
What does rent-to-own cost?
Rent-to-own usually costs more month to month than renting, because you are pre-paying toward a purchase. The main costs to budget for are:
Option fee. Roughly 2–5% of the purchase price, paid at the start and typically non-refundable.
Above-market rent. A premium over market rent, with an agreed slice recorded as a credit toward your down payment.
Land transfer tax at closing. Paid to the province when the transfer registers, not when you sign the option. First-time buyers may claim a provincial refund of up to $4,000; see the Ontario land transfer tax rules. Toronto buyers also pay a municipal land transfer tax, with its own first-time buyer rebate.
Legal and closing costs. Lawyer fees, title insurance, and disbursements at the eventual purchase, plus the cost of independent legal advice on the agreements before you sign.
What are the legal risks of rent-to-own?
The biggest risk is paying into a purchase that never happens and having little to recover. Rent-to-own sits outside the well-defined rules that govern ordinary purchases and mortgages, so the contract carries most of the weight. Watch for these:
You may not qualify for a mortgage. If a lender turns you down at the deadline, you can lose the option fee and every rent credit paid.
The owner could default. If the registered owner stops paying their own mortgage and the lender starts a power of sale, your option can be at risk while you try to recover money through the courts.
Non-refundable money. Option fees and rent credits are commonly forfeited if you do not complete, even for reasons outside your control.
Maintenance shifted to you. Some agreements make the tenant responsible for repairs a landlord would normally cover.
A price that ages badly. A fixed price above the home's later market value means you commit to overpaying, or walk away and forfeit your money.
How can you protect yourself before signing?
Because the terms carry the risk, review them before you commit, not after. A few practical safeguards:
Get independent legal advice on both agreements. A real estate lawyer reads the lease and the option together and flags terms that quietly favour the owner.
Check title and existing mortgages. A title search shows whether the owner already carries debt that could trigger a power of sale during your term.
Protect your option on title. Ask your lawyer whether a notice can be registered so your right to buy is recorded against the property.
Confirm your financing path early. A mortgage pre-assessment tells you whether the purchase is realistic before you pay a large, non-refundable fee.
Frequently asked questions
Is rent-to-own legal in Ontario?
Yes. Rent-to-own is legal and built from a residential lease plus an option to purchase. The tenancy falls under the Residential Tenancies Act, 2006, while the purchase side is a private contract, so the wording of the option agreement matters a great deal.
Do I get my option fee back if I do not buy?
Usually not. The option fee is normally non-refundable, and rent credits are commonly forfeited too if you do not complete the purchase before the deadline. The exact terms depend entirely on your agreement.
Who owns the home during the rental period?
The seller remains the registered owner until you exercise your option and register the transfer of title. You are a tenant with a contractual right to buy, not the owner, until the purchase closes.
When do I pay land transfer tax?
You pay land transfer tax at the eventual closing, when the transfer of title registers, not when you sign the rent-to-own agreement. First-time buyers may qualify for a provincial refund of up to $4,000.
Do I still need a mortgage at the end?
Almost always. Rent credits reduce your down payment, but you still have to qualify for a mortgage to complete the purchase. Confirming your financing path early is the single best way to avoid losing your deposit.
About the author
Joel Fox is a co-founder and COO at Ownright. He helps run the firm's day-to-day work on Ontario residential closings, refinances, and sales, and writes regularly to demystify the parts of a transaction that most homeowners only encounter once or twice in their lives.
At Ownright, we focus entirely on Ontario residential real estate law. We help homeowners with purchase closings, refinancing, and sales, and we review agreements like these so you know what you are signing. If you are weighing a rent-to-own deal, it is worth talking to a real estate lawyer before you commit. You can start your closing online or get in touch with any questions.
Legal references: Residential Tenancies Act, 2006, S.O. 2006, c. 17; Land Transfer Tax Act, R.S.O. 1990, c. L.6.
Important note: This article is not legal advice. No one should act, or refrain from acting, based solely on the information in this post or any linked materials without first seeking appropriate legal or professional advice.
