Lease Option

Learn how lease options work in Canadian rent-to-own agreements, how they benefit tenants and sellers, and what terms are critical to review.

Lease Option

May 22, 2025


What is a Lease Option?

A lease option is a contractual agreement that allows a tenant to lease a property with the option—but not the obligation—to purchase it at a later date under specified terms.

Why Lease Options Matter in Real Estate

In Canadian real estate, lease options are often used in rent-to-own arrangements. They give tenants time to improve finances or credit before committing to a purchase. Lease options typically include:
  • Fixed monthly rent and option-to-purchase terms
  • A set purchase price (or formula) for future sale
  • Option fee paid upfront (credited if the purchase is completed)
  • Defined deadline to exercise the option
These agreements benefit both parties:
  • Tenants secure future purchase terms while building stability
  • Sellers earn rental income and may sell at pre-agreed terms

However, if the tenant does not exercise the option, the fee may be non-refundable. It’s critical that lease options be reviewed by legal professionals to protect against unfair or vague terms.

Understanding lease options helps aspiring homeowners access the market while allowing sellers to maintain flexibility and potential profit.

Example of a Lease Option

A tenant enters into a lease option agreement for two years, paying $2,200/month and a $10,000 option fee. They have the right to purchase the home for $475,000 anytime within the lease period.

Key Takeaways

  • Grants tenant right—but not obligation—to buy.
  • Common in rent-to-own real estate.
  • Includes option fee and purchase terms.
  • Offers flexibility and financial preparation time.
  • Requires legal clarity and review.

Related Terms

Additional Terms

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Mortgagee in Possession

A mortgagee in possession is a lender who takes control of a property after borrower default, but before foreclosure or power of sale. The lender. more

Lease Surrender Agreement

A lease surrender agreement is a negotiated contract between a landlord and tenant that ends a lease before its scheduled expiration. Terms may. more

Green Infrastructure

Green infrastructure refers to natural or engineered systems that manage stormwater, reduce heat, and improve sustainability in developments.. more

Escrow Holdback

An escrow holdback is a portion of funds withheld at closing and held in escrow until specific conditions are met, such as completion of repairs,. more

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