Buying a home with tenants in it

If you are buying a tenanted property and you intend to live in it, getting vacant possession is the whole transaction. Everything else is secondary.

This is one of the situations where a deal goes wrong slowly and then all at once, and almost always because the timeline was too tight or the paperwork was casual.

What has to happen

• The seller serves the notice. In Ontario a landlord ending a tenancy so a purchaser can move in uses the prescribed form. It is the seller's job as the landlord, not yours.
• You see the paperwork. Not a reassurance that it is handled. The actual documents, served, with dates.
• Your lawyer is involved from the start. The agreement needs proper vacant possession language and your lawyer needs to see the notice.
• The tenant is compensated. The law requires the landlord to pay the tenant one month's rent, or offer another acceptable unit, no later than the termination date on the notice. It is a real cost and a condition of the notice being valid, so agree in advance who is bearing it.
• The building actually qualifies. The purchaser's-own-use route is only available where the complex has no more than three residential units, or where you are buying a condominium unit. On a fourplex it does not exist, and no amount of paperwork creates it.
• The timeline is realistic. Notice periods are set by law and the tenant has rights throughout. This is not something goodwill can accelerate.

Sixty days is the floor, not the plan

Sixty days is the minimum notice the law requires, and people hear that number and write a sixty-day closing. That is the mistake. The notice also has to end on the last day of a rental period, and it cannot be served at all until there is a firm agreement of purchase and sale. Serve it in the middle of a month and the earliest valid termination date is the end of the following month, which is closer to ninety days than sixty.

So my rule is ninety days, and I would rather have a hundred and twenty. Short closings on tenanted properties are where buyers end up taking possession of a house with somebody still living in it, and at that point it is a Landlord and Tenant Board matter that can run for months.

If you are buying it as an investment

Different situation entirely, and often a better one. An existing tenant paying market rent with a good history is an asset. Ask for the lease, the rent history and the deposit records, and check what rent is actually permitted rather than what is being collected.

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Written by Mike Elsey, Broker, Royal LePage Real Estate Associates, Brokerage. General information about the process in Ontario, not legal, financial, tax, insurance or inspection advice.