Rent-to-own agreements have historically been a practical solution for prospective purchasers who were unable to qualify for traditional financing at the outset but expected to do so within a year or two. These arrangements allowed individuals to occupy a property while making payments toward an eventual purchase, bridging the gap until mortgage approval was possible.

However, recent changes in federal compliance requirements – particularly under Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) rules – have significantly altered the landscape. Today, the source and flow of funds are critical factors in determining whether a purchaser qualifies for financing. Payments made under a rent-to-own agreement can create complications that lenders are increasingly unwilling to navigate.

Why Lenders Are Saying “No”

• Many lenders now view rent-to-own arrangements as high-risk. In fact, the mere mention of “rent-to-own” in an application often results in an automatic denial.
• Under FINTRAC rules, lenders must verify the origin of funds used for a down payment. Payments made to a vendor during the rent-to-own term do not meet these requirements in a straightforward way.
• As a result, even after years of payments, purchasers may find themselves unable to secure financing without unwinding the entire agreement.

What Should You Do Instead?

While rent-to-own agreements once served a useful purpose, they now pose significant risks and hurdles. If you are considering creative solutions to help a purchaser who cannot yet qualify for financing, seek legal advice before proceeding. There are alternative structures that can achieve your goals without jeopardizing future mortgage approval.

About the Author:

Nikki A. Rudachyk is a partner in the McKercher LLP Saskatoon office where she assists numerous clients with finance, commercial land transactions, and general business matters.

About McKercher LLP:

For nearly 100 years, McKercher LLP has grown deep roots across Saskatchewan, serving the community from offices in Saskatoon and Regina. Now, as one of the province’s largest and most established full-service law firms, we proudly carry on this legacy – following a client-first philosophy as we provide legal services and real solutions for the people who rely on us.

Disclaimer: This post is for informational purposes only and does not constitute legal advice. For guidance tailored to your situation, please contact a member of our Real Estate team.