Buying a Home with Tenants in Ontario

By: Steven Liambas
May 5, 2022

You have found the ideal home. It could be the home you want to live in or one you’re hoping to use as an income property. It could be a condo, house or duplex. There’s just one issue – there are renters already living there. What do you do with the existing tenants? Buying a home with tenants is a unique scenario. The transaction goes beyond the typical buyer and seller arrangement. It can be an especially complicated scenario for the buyer.

There is a lot to consider, whether you want to explore the possibilities of a vacant unit, evicting current tenants, or how the existing lease could impact the transaction.

You also have to consider the critical legal ramifications on top of the practical implications. Here is everything you need to know about buying a home with tenants in Ontario.

What happens when you buy a house with a tenant in Ontario?

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

When you purchase a tenanted property, you assume the tenant, including the lease, terms of the lease, and current rental rate. The lease terms should be included in the Agreement of Purchase and Sale.

You can’t ask the current owner to evict the tenant. You must wait until the lease is over. 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 lease. Additionally, you may ask for an incentive from the buyer to take the tenants on, but there is no requirement for the seller to oblige.

Regardless of how you want to handle an existing lease, it’s essential to carefully follow the Landlord and Tenant laws.

Purchasing a home with month-to-month tenants

When a residential lease expires in Ontario, the tenants automatically shift to a month-to-month tenancy.

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 your offer that you want vacant possession, putting the onus on the seller to work with the existing renters to end their tenancy. The only way to legally end the tenancy is if you, a family member, or a caregiver intends to take over the vacant unit.

Legally, the tenants must be given a 60 days notice in writing that the lease is being terminated. If you are looking for quick possession, it may not be possible with existing tenants. Additionally, you must provide one month’s rent as compensation for terminating the rental agreement.

It is 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.

So, 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 but then get new tenants that are not you or your family, that is considered a “bad-faith eviction.” In this case, the tenants can sue for wrongful eviction.

Becoming a landlord

If you decide to keep the existing tenants, you must abide by the current lease agreement. That includes maintaining the existing cost of the rent. The law allows you to raise the rent by approximately 2.2 per cent every 12 months. This amount is designated by the provincial government each year and can change. You can not exceed that rental increase.

You may ask the tenants to sign a new lease with a modified rent if they’re renting from month to month. 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 moving worth their while. This is sometimes referred to as “cash for keys.”  It will cause 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 (an Agreement to Terminate tenancy).

Renovating a house with tenants

When purchasing a new home, you may have plans to do a large-scale renovation. Legally, you can evict the tenants to perform a major renovation. You must give them 120 days notice beforehand.

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 be the same as before the renovations. The one catch is that the tenant must inform you before they move out that they want the unit after the renovation.

Getting To Know the Landlord and Tenant Act

Regardless of the arrangement you want to take with a tenanted property, it is essential to review the Residential Tenancies Act. It is the law, and you must comply.

As this is a legal matter, your purchase deserves all the care required. Consider hiring an experienced real estate lawyer to ensure you are adequately informed about the Residential Tenancies Act and that all the necessary stipulations are in the purchase agreement.

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