Important Things to Know When Buying a Tenanted Property

Looking at buying a condo that is currently rented?  A house that has a tenant in the basement? An income property with 3 units and 3 tenants? No matter the situation, if you’re buying a tenanted property, there are some really important things to know. Today, we’re looking at the buyer’s rights, responsibilities and obligations in five common tenant scenarios. 

Situation #1: You want to move into the condo or house, but the current tenant has a lease until June 30.

• During the duration of the lease, there’s nothing you can do. When you buy a tenanted property, you assume the current tenant, the current lease and the current terms of the lease, including the rental rate. Even if you want to move into the unit on March 3, if the lease doesn’t expire until June 30, you cannot evict the tenant. Additionally, you cannot ask the current owner to evict the tenant on your behalf.
• If you or an immediate family member wants to move into the unit at the END of the lease, you can provide 60 days written notice to the tenant, via the N12 – Notice for Landlord’s Own Use form. So if the lease expires June 30, you can give 60-days notice on or before May 1.
• Note that under the new provincial rules, you’ll need to pay the tenant the equivalent of one month’s rent if you decide to occupy the unit.
• Another alternative is to talk to the Tenants (or have the current owner do it) and see if they will agree to move out before the end of the lease. If they agree, make sure they provide the current owner with an N11, or the Agreement to Terminate the Tenancy. Remember: they are under no obligation to agree to move out.
• When buying a property and assuming a tenant, the details of the Tenant and terms of the lease should be included in the Agreement of Purchase and Sale (ideally, you should attach a copy of the current lease).

Situation #2: The Tenant’s original lease has ended and they are now month-to-month tenants. You or an immediate family member want to move in.

• You can ask the current owner to provide 60 days notice on your behalf, via the N12 – Notice for Landlord’s Own Use form.
• Note that while one of the pre-printed clauses in the Ontario Agreement of Purchase & Sale provides for vacant possession, it’s still a good idea to spell out exactly what you need the Seller to do.  In the agreement, make sure your REALTOR specifies that you or an immediate family member will be occupying the unit and require them to provide the N12 to the Tenant. Ask for confirmation/proof that it has been done.
• Note: If your closing date is less than the notice required by law, you will be assuming the tenant until the end of the notice period; only then can you move in.

Situation #3: The unit is tenanted at below-market rent and you don’t want to assume the tenants; you want to rent to a friend or find new tenants who will pay more $$.

• There’s nothing you can do to legally evict the Tenants, and you cannot ask the current owner to evict the tenants on your behalf.
• The only way you can legally force the tenants to move out is to provide the legally required notice and move into it yourself for at least a year (or an immediate family member). Note that the Landlord Tenant Board takes swift action against owners who falsely claim they will be occupying a unit and the penalties can be severe.
• Another alternative is to talk to the current tenants and see if they will agree to move out. If they do, make sure they provide you with an N11, or the Agreement to Terminate the Tenancy. Recognize they are under no obligation to agree to move out (though for the right price, they might agree).

Situation #4: The current Tenant has provided notice that they are leaving.

• Before submitting the offer, make sure you understand the date they are leaving so you can coordinate your closing date and avoid assuming the tenant.
• The Agreement of Purchase & Sale provides for vacant possession, so there isn’t a need to ask for any other notices to be served.

Situation #5: The unit is tenanted and the lease is in place until June 30. You want to keep the Tenants.

• When assuming a tenant, the details of the tenant and terms of the lease should be included in the Agreement of Purchase and Sale (ideally, you should attach a copy of the current lease). The terms of the lease and rental rate transfer with the property.
• On closing, the prepaid rent deposit will be transferred to you and any interest owing by the previous owner will be paid to you.
• At the end of the lease, the lease will automatically become a month-to-month tenancy. You can ask the Tenants to sign a new lease, but they are under no obligation to do so.
• If it’s been 12 months or more since their last rent increase, you can increase the rent by providing notice in writing, at least 90 days before the increase is to take effect. The guidelines for how much a Landlord can increase rent remain unchanged at 1.8% for 2019.

Situation #5: The unit is tenanted and the Tenants are month-to-month. You want to keep the Tenants.

• Your Agreement of Purchase & Sale must specify that you want to assume the Tenants. Otherwise, the pre-printed clause in the Agreement will require that the Seller give you vacant possession.
• When assuming a Tenant, the details of the tenant and terms of the lease should be included in the Agreement of Purchase and Sale (ideally, you should attach a copy of the current lease). The terms of the previous lease and rental rate transfer with the property.
• On closing, the prepaid rent deposit will be transferred to you and any interest owing by the previous owner will be paid to you.
• Because they are no longer under lease, you can ask the Tenants to sign a new lease, but note that they are under no obligation to do so.
• If it’s been 12 months or more since their last rent increase, you can increase the rent by providing notice in writing, at least 90 days before the increase is to take effect. The guidelines for how much a Landlord can increase rent remain unchanged at 1.8%, for 2019.