Assume you found your dream home and put your best offer in. After some back-and-forth negotiations, your offer was accepted. The property you're buying is tenanted. In other words, there's a tenant renting it, but the seller and their agent have assured you that the tenant will be moving out prior to your closing date. As your closing date approaches, you learn that the current owner is facing challenges with the tenants moving out. The tenants have refused to vacate the property and now both you and the seller are in panic mode as your closing date quickly approaches.
Believe it or not, this is a common situation in today’s real estate market. In Ontario, the growing cost of homeownership has led to a rise in renting, with 30% of the population opting for this option. A tenant’s refusal to vacate a property during a sale has become a well-known issue, partly attributed to increasing rental prices. In other words, with inflation of rent prices, a tenant who is currently paying $2,000 a month and is protected by rent increase guidelines, would likely have to pay a lot more for rent in the current market. Since nobody wants to face higher costs of living, tenants have been enforcing their rights within the Landlord Tenant Act.
What happens when a tenant refuses to move out?
When purchasing a property for personal residence, it is crucial to include a "Vacant Possession" clause in the agreement of purchase and sale. The correct clause will put the responsibility on the seller for ensuring the property is vacant and untenanted on the closing date. Under Ontario law, landlords cannot forcibly remove tenants if their lease is valid, necessitating a peaceful resolution when selling a property.
This can be achieved by obtaining the tenants' agreement to leave on the closing date or including a provision in the Agreement of Purchase and Sale to allow the tenants to remain until their lease expires, which requires the buyer to consent. If you are the seller, when your tenanted property sells, if the new buyers are planning to move in to the property, you are required to give your tenants 60 days notice from the first of the month that their tenancy will be ending. Your closing date should be set accordingly when negotiating your purchase agreement. Once the tenanted property sells firm and you give notice to the tenant to vacate due to sale, you will need to serve them with an N12 form which is the Notice to End Tenancy form.
If the buyers plan to use the property as an investment property themselves, they have to assume your tenants and the terms of their existing lease.
What if the tenants still refuse to move out, despite being served an N12?
If you committed to “vacant possession” and your tenant still refuses to move out on or before your closing date, your buyers will face a few options available to them. First, they may request an extension on the purchase agreement while you seek legal recourse through the Landlord Tenant Board (LTB), a process that can potentially last up to a year. Alternatively, your buyers may also choose to walk away from the agreement, or in some cases, seek damages against you for breach of the agreement because you could not deliver the property in the condition you have committed to, in the agreement.
The bottom line
It is crucial for both landlords and buyers of tenanted properties to understand the risks and limitations of transacting tenanted properties. A misjudgment in such matters can cause complications in real estate transactions.Landlords should collaborate with tenants during the selling process and seek legal advice to navigate the complexities of dealing with tenants. When it comes to letting tenants know you’re selling, it’s always best to give them ample notice to get prepared instead of surprising them with with a "for sale" sign on your lawn. By understanding the legal framework and working together, both landlords and tenants can find a resolution that suits everyone involved in the transaction.
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