5 Tips on Buying a House with Tenants Ontario

Purchasing a rental property is in itself a tricky undertaking. Buying a house with tenants in Ontario makes it even more difficult. First, the property with one or more tenants can present a rewarding scenario since it can subsidize your living costs. The rent payments will go into reducing your mortgage amount and other expenses. A tenant-occupied property will also improve your purchasing power as it presents an additional income right from the word go.

In other circumstances, the buyer will seek to get the property vacated before paying up fully for the property. The most important piece of advice is to be honest and upfront with your intentions when seeking to evict tenants. Providing misleading information to tenants with the intention of evicting tenants may lead to problems with relevant authorities.

It is not uncommon to buy a home or property that is already occupied by tenants. Here in Ontario, the Ontario Landlord and Tenant Board and the Residential Tenancies Act clearly outline the rights of both tenants and landlords. Surex explores some of the factors to consider before making the decision to go ahead to purchase the property with tenants.

Tenant Rights

When a house is put up for sale, tenants must be given a 24-hour notice for any showing to potential buyers. The showing times are between 8am and 8pm. Additionally, potential buyers have a right to have a look at existing leases to ascertain how long tenants have lived there and the length of the lease.

When buying a tenanted property, you should understand that the sale of a property doesn’t change the terms of tenant leases. The tenant leases are tied to the property just like easements run with the land and not the owner. That means that the leases will stand even after the property changes ownership. You have no legal authority to modify the agreement, raise rent, or kick out a tenant before the end of the lease term.

Moving in Without Tenants

There are a few ways to go around the eviction of tenants and getting the property without tenants. The first option is to submit an offer on the house contingent to the home being vacant at closing. You transfer the burden of moving tenants out of the property to the seller. It is upon the seller to break the lease or offer incentives for tenants to vacate the property.

Alternatively, when buying a house with existing tenants, you can negotiate for a closing date that coincides with the expiration of existing leases. If there are multiple tenants who have leases that end on different days, your closing date will be based on the furthest end date to coincide with the longest lease. Ensure that the current landlord/owner has served the tenants with the requisite notices and provides you with written acknowledgement from the tenants. Include a clause in the purchase agreement that the seller is responsible for any damages that the tenants have caused to avoid having to take on the costs of renovating the property.

The other option is to buy the house and proceed to break the leases, renegotiate the leases, or buy out the tenants. The challenge here lies in the fact that tenants with valid leases are under no obligation to accept new terms. You cannot evict a tenant before their lease expires. Beware that breaking a lease or forcing an eviction may trigger lawsuits. Whatever option you choose, make sure that it’s not in contravention of applicable laws and regulations when buying a property with tenants.

Strictly Abide by the Rules

You need to be aware of the rules that govern how to evict a tenant from a rental property. The law protects the tenant and you cannot evict them before expiry of their lease. A tenant must be given a 60 day notice of their impending eviction and valid reasons for decision to evict them.

As a buyer who wants to undertake major renovations to the property and then re-rent the units, you must provide written notice not less than 120 days to the existing tenants. The tenant with the proper notice in such a scenario has the right to move back when the renovations are completed.  Keep that in mind as the new landlord since a legal battle can ensue if you bring in entirely new tenants without due consideration of the old tenants. It is referred to as the right to first refusal to occupy the property after renovations are completed. A small caveat to this provision is that the tenant must express their intention to move back before they move out.

Due process must be followed when buying a property with existing tenants. Work closely with a real estate lawyer to ensure that the law is followed to the letter and everything is captured in the purchase agreement. You will be protecting your investment and future interests.

No Alterations to Tenancy Agreements or Increasing Rent

Keep in mind that you cannot simply hike the rent of the units as a new landlord after purchasing the property. Neither can you alter the existing agreements just because you are the new owner.

Don’t Use False Pretenses

The law also restricts the buyer from evicting an existing tenant under false claims such as they will be using the space whereas they have no intention of actually using it. If an evicted tenant later finds out that the space was never used as pointed out, they may press charges. The Ontario Rental Housing Enforcement will come in to investigate.  Where the landlord is found culpable, the tenant may sue for reimbursement of moving costs and higher rent if it applies for the new unit they moved into.

All these pointers will help you understand what you are getting into and ensure that the leases are well structured and written as per the existing rental laws. You have leverage in the transaction as you can demand that the seller fixes a few things before closing of the sale.