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Lease to Own Agreement

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Lease to Own Agreement Combo Package (Ontario)

Looking for a Residential Lease Agreement + Lease to Own Agreement? Well, we are now offering an Ontario Residential Lease + Lease to Own Agreement COMBINATION PACKAGE. Instead of buying each legal form separately (which would otherwise cost $94), you can now purchase both forms for only $67 – a savings of $27 (or 29%). The basic idea is that, if you are an Ontario landlord and you want to give a tenant the option to purchase your property, then you can have them enter into a Residential Lease Agreement and a Lease to Own (also called Option to Purchase Realty Agreement) at the same time.

Remember: all of our legal forms are lawyer-prepared, customizable (they come in .doc, .wpd, and .rtf formats), and affordable (prices range from $17 to $97, depending on the legal form packages). The legal forms are regularly updated. Best of all, they come with guidance in the form of a video tutorial (watch an example of how to customize the legal form) and two written guides (one that addresses the legal issues you should be aware of and a second which is entitled “Is My Legal Form Valid and Enforceable?”).

Lease to Own Caselaw

I thought it would be worthwhile to discuss a 2005 Ontario Superior Court of Justice case that involved a lease to own agreement.

In Henrikson v. Layton, [2005] O.J. No. 3019, the Ontario Superior Court of Justice had to determine whether Nancy Henrikson was allowed to enforce a verbal agreement between herself and Chuck Layton to purchase Layton’s property. The only written agreement between the parties was a LEASE TO OWN Agreement. That lease to own agreement basically included the following terms and conditions:

  • The term of the agreement was for 12 months;
  • Henrikson would pay a $8,500 downpayment;
  • Henrikson would pay $1,500 per month rent, payable on the 1st of every month; and
  • Henrikson would be able to purchase the property for $227,500.

Henrikson paid rent. The Lease to Own Agreement was extended VERBALLY for an addition 12 months on the same terms. So the Agreement was set to expire on August 31, 2004. But, when the time came for Henrikson to purchase the property, she was UNABLE to get the financing needed to complete the deal by August 31, 2004. So she claimed that Layton had agreed to extend the written agreement until August 31, 2008; for his part, Layton denied that claim, arguing that the Lease to Own Agreement expired on August 31, 2004. Layton wanted to keep the deposit and reclaim the property.

The Court rejected Henrikson’s claim on the grounds that Henrikson had benefited from Layton’s benevolence for a long period of time. It would not be fair or appropriate to force Layton to continue the Lease to Own Agreement until 2008. One of the big factors that motivated the court in coming to this conclusion was it’s interpretation of the Lease to Own Agreement and the circumstances surrounding that agreement. The Court found that it was “most beneficial to the [Henrikson]”. Why? Well, for starters, when Henrikson was unable to obtain financing after the first 12 months, Layton EXTENDED the contract. Furthermore, Layton tried to get financing for Henrikson through a friend at the Citizens Bank! Moving on, there were various provisions in the Lease to Own Agreement that said that Henrikson would not be penalized for not purchasing the property. Now, importantly, the Lease to Own Agreement DID NOT address the issue of the down payment of $8,500. Was it supposed to be retained by Layton if the deal didn’t happen? Was it supposed to be returned to Kenrickson because of the “no penalty” provision. The Court found that the tone and wording of the agreement meant that Layton was being generous and that the downpayment would be returned to Henrikson if she didn’t purchase the property. More evidence of Layton’s benevolence was the fact that he agreed to maintain the purchase price agreed to for at least 2 years in a “a quite robust real estate market”. Finally, Layton allowed Henrickson to remain in the home despite the litigation and his view that the contract was over as of August 31, 2004.

Notwithstanding all of the above, the Court felt that Layton did not want to “change the game completely at the expiry of the verbal extension”. For starters, Layton didn’t maintain any keys to the home since Henrikson stayed there. Furthermore, Mr. Layton renewed his mortgage for a five-year period midway through the second year of the tenancy, which tended to go against the notion that Layton felt he was committed to Henrikson for that additional year until August 31, 2004.

Taking all of this into account, the Court held that the most equitable thing to do in the circumstances was to extend the Lease to Own Agreement to August 31, 2005. Henrikson must come up with the additional $219,000 (she testified that she was able to obtain financing) so that the deal can be closed on or before that time. If such financing cannot be arranged, Henrikson will have sufficient time to find herself alternative housing in the interim, given that the date is some time away. Finally, if the deal does not close by August 31, 2005, then Henrikson will pay Layton the sum of $8,500 plus $7,500 in recognition of improvements to the property which she undertook.

So what’s the moral of the story? Well:

  • Make sure your extensions are IN WRITING (this would have saved a lot of time, money, and headache in this case). Indeed, the Statute of Frauds REQUIRES contracts dealing with land to be in writing. In this case, the court found that the Statute of Frauds was not an issue because both parties operated under a verbal agreement and their actions demonstrated part performance sufficient to get around the requirements of that Statute.
  • CHECK THE LANGUAGE of the Lease to Own Agreement. Is it in favour of the Tenant / Purchaser or the Landlord / Vendor? Does it address what happens to the downpayment if the deal doesn’t go through? What does it say about extensions? Are they allowed?
  • Make sure to act according to the agreement if you plan on enforcing it! Your actions can MODIFY the terms of the agreement. If you act as though the agreement was extended, then that may be an IMPLIED term in the agreement. You may be able to get around this by having an “ENTIRE AGREEMENT” clause in the Lease to Own Agreement. This clause basically says that there is nothing outside the 4 corners of that agreement that govern the situation. To make it even tighter, you’ll want to have clauses that specify how the agreement can be amended (e.g. only IN WRITING by BOTH PARTIES!). This will make it hard for a party to later claim that there was a verbal agreement to extend the term of the agreement!

FYI, the Lease to Own Agreement we offer on this website favours the Landlord / Vendor, does address what happens to the Option Fee (it’s non-refundable), and includes both an Entire Agreement Clause and Amendment Clause in favour of the Landlord / Vendor.

So there you have it 🙂

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