In the Philippine real estate market, a Lease with Option to Buy (often called "Rent-to-Own") is a hybrid contract that combines a standard lease agreement with a secondary right: the option to purchase the property within a specific period.

Because this arrangement involves two distinct legal stages—the leasehold and the potential sale—the tenant’s rights are governed by a combination of the Civil Code of the Philippines, the Rent Control Act (if applicable), and the specific terms of the contract.

1. The Dual Nature of the Contract

A Lease with Option to Buy is essentially two contracts in one. It is vital to distinguish between the right of possession (lease) and the right of option (the privilege to buy).

The Lease Phase: The tenant has the right to occupy the property in exchange for rent.
The Option Phase: The tenant pays an "option money" or "option fee" to keep the offer to sell open for a fixed duration.

Key Legal Distinction: Option Money vs. Earnest Money

Under Article 1479 of the Civil Code, an accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price.

Option Money: This is the payment made to secure the right to decide later. If the tenant does not buy, this is usually forfeited unless stated otherwise.
Earnest Money: This is part of the purchase price and is given as proof of a perfected sale.

2. Essential Rights of the Tenant-Buyer

Right to Exclusive Option

During the option period, the owner is legally barred from selling the property to any third party. If the tenant has paid a separate consideration for the option, the owner cannot withdraw the offer until the period expires.

Right to Fixed Pricing

The purchase price is typically agreed upon at the commencement of the lease. The tenant has the right to purchase the property at that locked-in price, regardless of whether the market value of the property increases during the lease term.

Right to Peaceable Possession

The tenant enjoys all rights under a standard lease, including:

Protection against unreasonable entry by the landlord.
The right to have the property maintained in a condition fit for the intended use.

Right to Information and Documentation

The tenant has the right to demand proof of ownership (Transfer Certificate of Title) and tax clearances to ensure the property is free from undisclosed liens or encumbrances before exercising the option.

3. Obligations and Forfeiture

It is a common misconception that all "rent" paid automatically goes toward the down payment.

Rent Credit: Tenants only have the right to credit a portion of their rent toward the purchase price if it is explicitly written in the contract.
Default: If a tenant fails to pay rent, the landlord may terminate the lease. Generally, the termination of the lease also extinguishes the option to buy, unless the contract provides a "grace period" or "severability" clause.

4. Applicability of the Maceda Law (R.A. 6552)

The Realty Installment Buyer Protection Act (Maceda Law) protects buyers of real estate on installment plans. However, its application to Lease-Option agreements is nuanced:

If the contract is a true lease with an option, the Maceda Law generally does not apply until the option is exercised and an actual "Contract to Sell" on installments begins.
If the contract is a disguised installment sale (where the "rent" is significantly higher than market rates because it is clearly intended as payment for equity), Philippine courts may apply the Maceda Law to prevent the forfeiture of payments.

5. Formal Requirements for Protection

To fully protect their rights, tenants should ensure the following:

Written Contract: Under the Statute of Frauds, agreements for the sale of real property (or an option for such) must be in writing to be enforceable.
Notarization: A notarized document converts a private instrument into a public one, making it easier to prove in court.
Annotation: To protect against third-party claims, the tenant may attempt to have the "Option to Buy" annotated on the property’s Title at the Registry of Deeds, though this requires the owner's cooperation.

6. Common Pitfalls

Non-Refundability: Unless the contract says otherwise, "option money" is not refundable if the tenant chooses not to buy.
Automatic Rescission: Many Philippine contracts include a "resolutory condition" where a single missed payment automatically cancels the option to buy. Tenants should negotiate for a notice requirement or a grace period.