Caveat emptor, warn rent-to-own landlords

Terry and Maxine Henry moved to Alberta for work and participated in a rent-to-own scheme organized by Kelowna Home Deals, but haven’t received any money from their tenants/buyers.

“It was awful,” said Maxine told CBC News reporters, “and you feel awful for having been duped into such a scheme.”

The Henry’s have remained responsible for the mortgage of their failed rental property in addition to their primary residence, amounting to $4,400 per month since September.

So what went wrong?

In September, Dell Burnett of Kelowna Home Deals created a tentative contract to give the Henry’s the option to purchase their half of a duplex. This option could be transferred to a buyer, which Burnett said he found in October in tenant Carlotta Lam. However, the contract remained just that – tentative. The deal was never cemented and Lam has not paid a cent as a result.

According to real estate lawyer Mark Weisleder, investors can protect themselves from similar mistakes by doing their due diligence on companies that claim to offer these kinds of programs.

“Sellers should not enter into any kind of option agreements with companies who are not in fact buying their homes. Buyers should also not pay these companies anything,” he says. “In my opinion, this company is trading in real estate without a licence. Sellers should only make a direct deal with the tenant who is going to move in to the property.”

The fault ultimately lies with the fact that the correct paperwork wasn’t in order. As nothing was signed, Lam is not officially a tenant, and the Residential Tenancy Branch has refused to intervene.

“The law should be on our side, but we were told she is not a tenant” explains Maxine. “We have no tenancy agreement with her. We’re now going to have to get bailiffs to get her out at some point ... and that’s going to cost us more money.”

Weisleder cautions investors to make sure two agreements are signed when entering an RTO partnership: “A lease agreement for the tenancy, and a separate agreement for the option to purchase at a set price. First and last month’s rent under the lease and the first deposit under the option agreement should be paid by certified cheque or money order, to the seller, BEFORE any keys are given to the tenant. The option agreement should state that if any rental payment or option payment is not made when due, then the tenant forfeits their right to purchase the property and forfeits any deposit paid under the Option Agreement.”

If the tenant fails to pay rent, they – unlike Lam - can then be evicted under the terms of the lease.

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