Buying a Home with Tenants in Ontario

You’ve found the ideal home. It could be the home you want to live in or one you hope to use as an income property. It could be a condo, house, or duplex. There’s just one issue – renters are currently living there.

What do you do with the existing tenants?

Buying a property with existing tenants is a unique scenario. The transaction goes beyond the typical buyer and seller arrangement and can be an especially complicated scenario for the buyer.

There is a lot to consider – including legal issues on top of practical ones. Read our RE/MAX tips for buying a property with existing tenants to ensure your purchase is as smooth as possible.

What Happens When You Buy a House with a Lease?

A change of ownership does not cancel a lease. If a lease exists between the seller and tenants, it legally remains in effect, even after the closing date. Even if you intend for the property to be your primary residence, you can’t simply evict tenants with an existing lease in place.

When you purchase a tenanted property, you assume the tenant, their lease, the terms of the lease, and the current rental rate indicated on the lease. For this reason, the lease terms should be included in the Agreement of Purchase and Sale.

You also can’t ask the current owner to just evict the tenant. The landlord can ask if the tenants want to leave, but they are under no obligation to do so.

To get a vacant home, you can also negotiate a closing date that coincides with the end of the current tenant’s lease.

Getting to Know the Residential Tenancy Act (RTA) in Your Province or Territory

Regardless of the approach you want to take with a tenanted property, reviewing the Residential Tenancy Act (or other applicable tenant laws) within the province or territory you live in is essential.

Before you decide to purchase, contact your Provincial or Territorial Consumer Affairs Office for information on the landlord and tenant legislation where you live. You can find a list of these offices as well as links to their websites and on the Government of Canada website at Canada.ca.

A Synopsis of the Rules Regarding the Sale of Tenanted Property by Province and Territory

Below is a synopsis of how each province and territory deals with this situation, including whether tenancy continues and whether tenants can be evicted.

British Columbia

When a rental property is being sold in BC, the tenancy continues under the same terms. The landlord cannot terminate a lease simply because they want to sell the property.

Instead, the new owner takes over as the landlord. No new lease is required, though this may occur if both parties agree to do so.

If the new owner chooses to move into the property or allow a family member to move in – such as a spouse, children, parents, or in-laws – they must provide written notice to the current tenant. The current tenant then has 15 days to dispute the notice. Unless the buyer serves adequate notice to the renter to end the tenancy, the tenancy will continue.

Alberta

In Alberta, landlords are under no obligation to inform tenants that they are selling the property the tenants currently reside in. Even if the tenancy is fixed for a specific amount of time, the landlord can still list the property for sale. In fact, tenants may not even know that the property is sold until the new owner contacts them.

That said, the tenancy does not end just because the property is sold. A fixed-term tenancy can only end under the terms specified in the lease agreement, which means the tenant can remain on the premises until the lease term ends.

In the case of a periodic or monthly tenancy, if the new buyer requests to have the tenancy terminated, the landlord must provide at least 3 months’ notice to the current tenants as part of the conditions of the property sale.

Ontario

When a rental property is sold in Ontario, the landlord must ensure that the tenant’s rights remain upheld. Landlords are not permitted to evict tenants if a lease agreement is still in effect.

If the landlord wants to sell the property and evict the tenant in the process, it’s easiest if the lease agreement contains an early termination clause, but adequate notice must still be provided. In some cases, the landlord must also help relocate the tenant or pay one or more months’ rent.

Quebec

In Quebec, the terms of a tenant lease continue even after a property ownership change. New owners cannot evict tenants when the term of the lease expires, since leases automatically renew in Quebec. For all practical purposes, tenants are allowed to remain in their rental property for as long as they like, provided they uphold their lease responsibilities.

However, landlords and new owners may terminate a lease when it expires under certain circumstances, such as if they choose to move into the property themselves or allow a family member to move in. In order to give the current tenants time to relocate, the new owner must provide ample notice of repossession to the tenant once the sale is finalized.

Manitoba

Like many other provinces, when a landlord sells a rental property in Manitoba, the tenant must be provided with sufficient notice to move if the new owner requests the property to be vacated for their own use or if they plan to have a close family member move in. Again, landlords cannot simply require tenants to move out if they plan to sell.

New Brunswick

Landlords must provide notice to tenants once a rental property is sold in New Brunswick. The notice – which is called a Form 8: Notice of Transfer – specifies the name of the new owner and the date that the sale will be finalized.

If the new owner wants the property vacated, they must provide the tenant with sufficient written Notice of Termination. The landlord must also have a valid reason for wanting the tenant to move out – such as wanting to move in, if they plan to use the property for something other than a rental unit, or if they will be substantially renovating the property.

Saskatchewan

Landlords in Saskatchewan can evict a tenant if the property is sold and the buyer or a close family member wants to move in. But in this case, the landlord must provide at least one month’s notice in the case of a month-to-month tenancy agreement. In the case of a fixed-term lease, landlords cannot evict the tenant.

PEI

When a rental property in PEI is sold to a new owner, the existing lease agreement and all its terms must still be honoured. If a new owner wants to change the rental agreement, the new owner must apply to the Office of the Director of Residential Rental Property. Otherwise, tenants cannot be asked to move out.

If the new owner wants to move into the property or have it vacated to allow a close family member to move in, the tenant must be provided with Form 4: Notice of Termination by Lessor of Rental Agreement.

Tenants who object may file Form 6: Application by Lessee to Set Aside Notice of Termination within 20 days, after which a hearing will be scheduled.

Nova Scotia

In Nova Scotia, landlords who sell a rental property with four units or less must provide the tenant with a Notice to Quit if the new owner or a close family member wants to occupy the property. The process is as follows:

• Landlord enters into an agreement of purchase and sale to sell the property.
• All conditions of the sale have been met, except for the title of the property.
• Purchaser asks the landlord, in writing, to end the tenancy (lease) because the purchaser or family member of the purchaser is going to move in (occupy the premises).
• Purchaser provides the landlord with a sworn affidavit that the purchaser or family member of the purchaser is going to move in (occupy the premises).
• Landlord completes the Landlord’s Notice to Quit.
• Landlord personally delivers the completed form and copy of the sworn affidavit from the purchaser to the tenant or sends it by registered mail.

NOTE: The effective date of the Notice to Quit must be no earlier than 2 months after the tenant receives the notice. You need to give notice on or earlier than the day before the day in the month that rent is payable under the tenancy (lease) agreement.

If it’s a fixed-term tenancy (lease), the effective date of the Notice to Quit must be no earlier than the date specified as the end of the tenancy (lease) under the tenancy (lease) agreement.

Newfoundland and Labrador 

When a rental property in Newfoundland and Labrador is sold, the rental agreement remains in effect, and the new owner is required to uphold all terms of the current lease.

If the new owner wants the tenant to move out, at least 3 months’ notice would be required for month-to-month tenancies, while the new owner must wait until the lease expires before evicting the tenant in the case of a fixed-term lease.

Yukon, Northwest and Nunavut Territories

To explore the rules regarding the sale of tenanted property in Canada’s Yukon, Northwest and Nunavut Territories, you’ll need to consult the individual links to their websites available through the Consumers Affairs section on the Canada.ca website.

Purchasing a Home with Month-to-Month Tenants

In many provinces – such as Ontario and Quebec – when a residential lease expires, tenants automatically shift to a month-to-month lease.

If the tenant is on a month-to-month agreement, there are more options for taking possession of a vacant home. You can specify in the Agreement of Purchase and Sale that you want vacant possession, putting the onus on the seller to work with the existing renters to end their tenancy.

If you are looking for quick possession, it may not be possible with existing tenants.

It’s also important to remember that you must provide the tenants with an N12 (a Notice of Eviction for Personal Use). It stipulates that any rental unit will be occupied by:

• you (the buyer/landlord)
• your spouse
• a child or a parent of you or your spouse
• a person who will provide care services to you or a family member

It is illegal to evict the current tenants in order to get new tenants and raise the rent. If you evict tenants with an N12 form and then get new tenants who are not you or your family, it’s considered a “bad-faith eviction.” In this case, the tenants can sue for wrongful eviction.

It should also be noted that a landlord cannot serve an N12 notice for “own use” if a corporation owns the rental property. The rental unit must be owned in whole or in part by an individual, and the landlord must also be an individual in order to give an N12 notice for his own use.

Lastly, in Canada, a landlord must provide a tenant with at least one month’s rent as compensation for terminating a rental agreement if the landlord is ending the tenancy for their own use.

Becoming a Landlord

If you decide to keep the existing tenants, you must abide by their current lease agreement, including maintaining the existing rent cost. Each province in Canada has different laws regarding the percentage it allows you to raise the rent every 12 months. The provincial government designates this amount, which can change annually. You cannot exceed the legal rental increase.

While five provinces and one territory – including British Columbia, Manitoba, Ontario, Quebec, Prince Edward Island, and the Yukon – all enforce some form of rent control, Alberta, Saskatchewan, and the Atlantic provinces do not, preferring to set their own set of rules restricting how and when residential rents can be increased. In Alberta, for instance, landlords must wait a minimum of 12 months before a tenant’s rent can be raised, but the rent increase is up to the property owner to determine.

You may ask the tenants to sign a new lease with a modified rent if they rent monthly. However, they are under NO OBLIGATION to do so and can continue renting under the terms they agreed to with the previous landlord.

If finding new tenants is essential, you can make a financial offer to make a current tenant’s move-out worth their while. This is sometimes referred to as a “cash-for-keys” offer. As a new owner, it will cause you an immediate financial loss, but you could make it up with an increased rent with a future tenant. If the tenants decide to vacate, they’ll need to sign an N11 form (or an Agreement to Terminate Tenancy) in most provinces and territories in Canada.

Cash-for-keys agreements are legal and involve the tenant handing over the keys to a rental property in exchange for an agreed-upon sum of money or other incentives.

Although it may seem unusual for landlords to pay tenants to leave, cash-for-keys is often less expensive than going through the eviction process. For tenants, it means having extra money to pay for rent increases that might come with a new location, and it can also be used to ensure the landlord provides a good reference letter for the tenant.

Renovating a House with Tenants

When purchasing a new property, you may have plans to do a large-scale renovation. Legally, you can evict the tenants to perform a major renovation, but you must give them 120 days’ notice beforehand. In some provinces, such as Ontario, the landlord must also provide the tenant with alternate accommodations or financial compensation amounting to the difference between the tenant’s current rental payments and the rental payments on a similar property for the duration of the renovation.

Once the work is complete, the tenant has the right to move back into their previous unit. This is known as their “right of first refusal” to occupy the premises. The rent must also be the same as before the renovations. The one tenant requirement is that the tenant must inform you BEFORE they move out that they want the unit after the renovation.

H2 The Two Biggest Tips for Buying a Property with Existing Tenants: Get Everything in Writing and Follow the Law
By documenting all aspects and following all laws related to buying a property with existing tenants in Canada, you can shield yourself should relations with tenants sour and issues escalate.

Hiring an experienced real estate lawyer will ensure you are adequately informed about all applicable provincial or territorial tenancy laws and that any needed stipulations are included in your Agreement of Purchase and Sale.

Connect with a RE/MAX agent and learn more tips for buying a property with existing tenants, and be ready for what happens when you buy a house and you have a lease.

This article is not intended as legal advice. We recommend obtaining the guidance of a qualified paralegal or lawyer to navigate landlord/tenant issues.