| Buying

Oh boy. That love at first site thing when house hunting can be a real trouble-maker. We’ve seen it time and time again — clients who first seem so calm, and business like in their search suddenly fall to pieces when they find “the one”. Then it’s no holds barred, and all common sense is thrown to the wind. Even worse? The ones who fall hopelessly and helplessly in love with a tenanted property. Whether it’s a condo, a house with a rented apartment, or an idyllic home with three separate flats, falling in love with a tenanted property can lead to some complications and unexpected responsibilities you should know about now.

The Lease is Long, But Your Patience is Short

This is one of the most common situations when buying a tenanted property. The tenant has signed a lease that still has several months to go, but you want in now. Unfortunately, the law is on the side of the current tenant. Your new home remains the home of the tenant for the full duration of the lease, and you become responsible for all the terms included in that lease. On the bright side, you also receive the rent amount included on the lease, which hopefully will cover your mortgage. On the less than bright side you need to become a landlord for the duration of the lease. That means attending to all their needs, and in essence becoming a superintendent. You also have to collect the rent, which hopefully they plan to pay until the lease runs out.

What You Can Do

  • Give the tenant 60 days written notice prior to the end of their lease, using what’s called an N12. This is a special Notice for Landlord’s Own Use form that tells the tenant they are evicted as of the end of the lease, and you’ll be moving in.
  • Include the details of the lease in your Agreement of Purchase and Sale (APS).
  • Talk to the tenants or current owner to see if they’re willing to leave earlier and sign an Agreement to Terminate the Tenancy using an N11 form.
  • Request appropriate clauses be inserted into the APS to override vacant possession since the tenant will be living in the home after closing.
  • Ensure you receive the prepaid rent deposit at closing in hand with interest owed.

What You Can’t Do

  • Ask the current landlord to evict the tenant so you can move in.
  • Tell the tenants they have to leave before the lease runs out.
  • Refuse to pay the current tenant a month’s rent when you decide to move in yourself. This goes against provincial rules which require landlords taking over the home pay the current tenants one month’s rent.

So in this case, patience is key if you really want that home. You need to be prepared to take on the landlord role, which hopefully is only for a few months. But that still leaves you on the hook to cover the cost of repairs during that time. Although you would’ve had to make those repairs had you been living in the home, it comes with a sense of urgency when dealing with tenants. You’re also at the peril of the tenants who will hopefully not cause damage to the home before they leave. Although you have rights to recoup any damages, this can still lead to costly legal procedures you don’t want to worry about.

The Lease is Month-to-Month and You Want In Now

This situation still sides with the tenant, but can be a little more flexible based on how you present your offer. In these cases you could include a clause requesting the seller notify the tenant the lease will end using the same 60-day notice process above. This lets you off the hook to worry about landlord woes and you can move in 60 days which is a very reasonable time. The key is to make sure everything is provided in writing, you have proof of the terms of the lease and that it is in fact month-to-month. Otherwise you could run into serious issues with a tenant who knows their rights. We look at the documents to make sure either the lease is legit based on what the seller says, or that the notice has been given to clear the path for your move based on a 60 day closing date.

What You Can Do

  • Ask the current owner to provide 60 days’ notice using the same process above with the N12 so you don’t have to. The seller doesn’t have to agree, but if they want to sell, they should be willing to accept these terms.
  • Ask the seller for a short close period, and assume the tenant agreement, and complete the N12 form and process on your own.

What You Can’t Do

  • Ask the current landlord to evict the tenant so you can move in.
  • Tell the tenants they have to leave.
  • Refuse to pay the current tenant a month’s rent when you decide to move in yourself.

In this case you might be less likely to have to take over the tenant agreement if the seller agrees to complete the N12. As well, if the seller isn’t so keen on this idea, the longest you’ll have to wait is 60 days. However, we would advise you make sure the closing date is not less than the number of days’ notice required by law, so you move in free and clear of any landlord ties. As well, in tenanted situations, we make sure all relevant clauses are included so you don’t face issues with the tenant when it’s time to move in.

Good News! The Tenant Already Gave Notice

Yes, this sure would be good news, but just be careful as it might not be true. A seller knowing an offer is coming from a buyer who wishes to move in on their own, might sense hesitation due to the property being tenanted. It could be tempting to lie and say there’s no worries about the tenant as they’ve already given notice when they actually haven’t. As with above, getting everything in writing to confirm the tenant has given notice, and that the dates line up with your plans is very important. Otherwise you’ll face taking over the lease at the closing date.

What You Can Do

  • Make sure the APS stipulates the offer is based on vacant possession due to tenant notice being received by the seller, so the onus doesn’t fall on your to serve notice of eviction.

What You Can’t Do

  • Avoid assuming the tenant agreement if it is discovered the tenant had not given notice and the offer did not include a clause specific to vacant possession based on the tenant (or seller) having given notice.

This really is the best case scenario when buying a tenanted property you intend to live in. As long as notice is confirmed, you’re golden.

You Want to Occupy the Top Floors, But Keep the Basement Tenant

Regardless of where the rental unit is in the home, if you want to live in the home, but keep tenant(s) living in other units, this could be an opportunity to pay off your mortgage faster. Although you have to assume the role as landlord, living in the home with the tenants can sometimes make this easier. Of course it can also make it harder! So, where you might run into issues with this situation is the potential of losing the tenants. If you can only afford the mortgage with the income from the tenant, and the tenant decides to pack and run when their lease runs out, you now need to find a trusted tenant, or take over the unit as part of your home and cover all costs on your own.

What You Can Do

  • Ensure your APS includes the terms and the lease(s) so that you seamlessly take over the role of the landlord and all the money for the rent (and of course the responsibilities of being a landlord.)
  • Ensure you receive the prepaid rent deposit at closing in hand with interest owed.
  • Continue the lease once it expires as a month-to-month if you wish.
  • Give the tenant 60-days’ notice prior to the end of the lease if you wish to take over the entire home.

What You Can’t Do

  • Demand the tenant sign a new, longer, or more expensive rental lease before the current lease ends.
  • Evict the tenant before the lease ends.
  • Refuse to pay the current tenant a month’s rent when you decide to move in yourself.

So if you want to have a tenant help pay for the mortgage, assuming a tenant is the easiest way to go. However, always keep in mind they can decide to leave, which could lead to issues finding a new tenant you can trust. Since you’ll be living under the same roof, it’s always risky finding someone who will be quiet, respectful, and also pay their rent on time. You also could be stuck with a high maintenance tenant who could make your life miserable.

You Want to Occupy the Top Floors, Keep the Basement Tenant, But the Current Rent is Very Low

Once again, if the lease is in place, you nor the seller can evict the tenant to make way for a higher paying tenant. In this case, things can get very unpleasant, and you’ll need to have a bit of a killer instinct to have things work in your favour.

What You Can Do

  • Provide notice to evict the tenant with intent to move in yourself using the N12 form. However, by law you have to then live in the unit for one whole year, or have a family member live there.
  • Ask the current tenants if they would be willing to move, and then have them complete the N11 to agree to terminate the lease.
  • If they have not had a rent increase in over a year, you can raise their rent, but only by 1.8% giving them 90 days’ notice. This might cause them to leave sooner, so you can find a new tenant and charge a more reasonable rent to cover your costs. Or they might be happy to stay despite the increase…

What You Can’t Do

  • Evict them with claims you intend to move in and then re-rent the unit to a new tenant. You do have the right however, to rent to a family member without facing penalties.
  • Make their lives miserable so they have no choice to leave.
  • Raise the rent beyond the 1.8% if they have not had an increase in over a year, or raise it by any amount including 1.8% if they did have a rent increase in less than a year.

In this case, you might just want to reconsider putting in an offer. If you do have the killer instinct, or actually had intended to rent the unit to a family member, you could make it work. Just remember if you have to find a new tenant willing to pay the higher rent, it’s currently a tenants’ market. This means a lot of competition with other landlords, so your rent raising plans could actually backfire. Also doing anything against the law comes with some pretty severe penalties, so you want to be certain to do things on the up and up.

The Bottom Line:

When you fall in love with a tenanted property, things can work in your favour. However, you need a kickass team of specialists experienced in tough negotiation and thorough research to avoid the pitfalls of tenanted properties. We are ready to help you with all of your property needs. Just give us a shout at 416-291-7372. We’d love to work with y