‘Rent to Own’ Schemes: A Case for Using Licensed Professionals

Recently, a family from Vernon, B.C. moved to Calgary, and rather than sell their Vernon home, they entered into a contract with a company that would find a buyer willing to “rent to own.”

The company they worked with is one of many that advertises its willingness to enter into contractual agreements for residential properties as if they were going to “rent to own” the property. The company then takes on the task of finding new buyers willing to rent to own and assigns the contract to them. In theory, this company would be in an agreement of sale contract with the owners of the property, and the company would then pass that aspect of the contract on to a third party, making the third party the ultimate “rent to owner.”

In this particular case:

• The company entered into a contract with the sellers to rent to own a property.
• The company found a buyer willing to take over the rent to own contract.
• For whatever reason, the buyer was allowed to move in, even though the contract was never finalized.
• The property owners never received any money from the company or the individual who was supposed to be living in the property under a rent to own agreement.
• To add insult to injury, the buyer stopped making her ‘rent to own’ payments once she found out the seller, the actual property owner, was not receiving any of the money she had been paying and the paperwork was not finalized.
• So now, someone is living in the house in Vernon, rent-free, and short of taking the matter to court, there is no recourse for the owners to remove her.

How did this happen?

The rent to own contract was not finalized between the third party and the sellers. So the third party was not technically a tenant of the sellers.

How does having a tenancy agreement change things?

A tenant is subject to the Residential Tenancies Act (Alberta and B.C. have their own Acts that would apply to their jurisdiction). If there is no clause in your rent to own contract explicitly stating that the rent to owner will be a ‘tenant’ with an option to purchase, then the Residential Tenancies Act will not apply to your contract. Under the Residential Tenancies Act in Alberta, tenants who are not in compliance with their lease agreement (non-payment of rent, for example) can be evicted in as little as 14 days. Someone who has “bought” a property under a rent to own agreement of sale and is not legally a ‘tenant’ with a lease agreement in the contract, cannot be evicted. They must be forced out in a similar manner to a foreclosure, which can take months or even years. And if there is no finalized paperwork and the buyer is already in the property, as in this case, then things move in to a legal grey area.

How can a company get away with this?

The principal of the “rent to own” company is not a licensed real estate professional. Other than legal proceedings, there is no recourse for the seller or the potential buyer after the deal went sour. The company that entered into the original arrangement with the property owners claims the deal falling through is not its fault. The principal of that company maintains he created a contract that gave him the option of purchasing the family’s home, an option that would be passed on to an individual wanting a rent to own situation. Once the principal of the company had an interest in the property vis a vis his contract with the owners, he did not need to be licensed in order to sell the
property.

Such unlicensed individuals and companies are not regulated and have no standard of practice they must adhere to in these sorts of deals.

What can I do to stop this from happening to me?

Always use a licensed real estate professional in your property transactions. In Alberta, you can check the licensing status of whomever you are working with at reca.ca, using the Find a Licensee tool.

Licenses are required to follow standards of practice specified by real estate legislation and RECA holds them accountable for their actions. If a consumer complains about a licensed individual, RECA can open an investigation and hold formal hearings to explore possible breaches of real estate legislation and discipline misconduct when appropriate.

Considering using rent to own to sell your property?

Properly executed rent to own contracts can be an excellent way to sell your property when no traditional buyers seem interested. It is a good idea to obtain independent legal advice on any contract you are contemplating. A lawyer can help you ensure any rent to own contract has provisions to protect your interests, including setting up the transaction as a lease with an option to purchase the property at a future date, thus ensuring the Residential Tenancies Act applies.

For more information on the benefits of using a licensed professional, check out RECA’s Consumer Information section on reca.ca, or checkout the Getting to Know RECA series and RECA Consumer Series on YouTube.