Purchasing A Tenanted Property

Purchasing a residential property which has tenants currently living in the residence can offer a number of challenges. Being aware of those challenges will help you to minimize your exposure and ensure a smooth transition of ownership whether your intentions are to live in the residence, maintain the residence as an investment property, or otherwise.

Personal Use

If you intend to use the residence for “personal use” upon possession, the vendor must give the existing tenant at least two months’ notice in writing to vacate the residence. A vendor is under no obligation to provide this notice and as a result, a prospective purchaser should ensure that this notice will be given. In order to ensure notice will be given a purchaser must ask the landlord in writing to give notice to end the tenancy however there a number of conditions and restrictions on when and how that notice can be provided.

Demolition

A common mistake that vendors make is attempting to provide a tenant with notice to vacate the residence under the personal use exception when the prospective purchasers intended use for the residence is demolition. Demolition is not treated as a “personal use” and as result, does not fall under the exception. If the purchaser intends to demolish the residence then only the purchaser can give notice to the tenant and that notice can only be provided once the purchaser owns the property (after closing).

Legality of Tenancy

Often times especially in the case of investment properties, the purchase contract includes a provision acknowledging that the purchaser will accept title subject to existing tenancies. A purchaser should however ensure that the property is zoned to allow for the tenancy and compliant with any municipal bylaw. If not, the purchaser can be opening him or herself up to potential fines, costs associated with a breach of contract, costs of remediation or other sanctions imposed by any applicable bylaw. With this in mind, investigating the legality of the tenancy can be tricky. If the tenancy is not in line with any municipal bylaw and the municipality is alerted to this fact, the municipality could take action in respect of the illegal tenancy. This can create problems for both the purchaser and the vendor in the transaction.

These are just a few of the many considerations a purchaser should be aware of when considering a residential property with existing tenants. Minimize your risk by seeking out sound advice from legal professionals in your community.