Buying a Tenanted Property in Ontario: What Happens to the Lease

You have found a rented house or condo and the tenant comes with it. Maybe you want an investment, or maybe you hope to move in yourself. Either way, the first question is usually the same: does the tenant have to go, and what exactly are you agreeing to take on?

In Ontario the short answer is that the lease usually stays in place after closing. This article explains why, when a buyer can ask for the unit to be emptied, and what to check before you close.

The tenancy usually comes with the property

Under the Residential Tenancies Act, 2006 (RTA), covenants about a rental unit run with the land. A buyer of a tenanted property therefore takes it subject to the existing tenancy and its terms. The rent, the term and the tenant's rights carry over to you.

The RTA applies despite any agreement or waiver to the contrary, and a lease term that conflicts with the Act is void. That means a tenant cannot be talked out of protections by a clause in a lease.

A buyer also cannot take matters into their own hands. A notice to end a tenancy does not end it by itself. If the tenant stays, the landlord must apply to the Landlord and Tenant Board (LTB), and only the Sheriff can enforce an eviction order. A landlord cannot remove the tenant or change the locks.

There is an exception for shared living. The RTA does not apply where the occupant must share a bathroom or kitchen with the owner, or with the owner's spouse, child or parent who lives in the same building. A self-contained basement apartment does not fall under this exemption.

When a buyer can ask for the unit to be vacant

The RTA allows a purchaser's-own-use notice. The landlord of a residential complex with no more than three residential units, who has signed an agreement of purchase and sale, may give the notice (form N12) for the buyer. The buyer must in good faith require the unit for their own residential occupation, or that of their spouse, child or parent (or the spouse's), or a caregiver.

For a condominium unit that is a rental unit, these notices are also available whatever the size of the building. There is an exception for converted buildings: once a complex becomes subject to a registered condominium declaration and description, a landlord may not give this kind of notice to a person who was a tenant at the time of registration.

The termination date must be at least 60 days after the notice is given and on the last day of a rental period. For a fixed-term lease, it must be the end of the term. The selling landlord must pay the tenant one month's rent, or offer another acceptable unit. This stays the seller's obligation and does not pass to the buyer.

What the lease binds you to

Because the tenancy carries over, you step into a relationship that someone else set up. Before closing, find out what that includes.

• The rent, the term and any written terms of the lease, since you take the property subject to the tenancy and its terms.
• Whether the lease is the Ontario standard lease. For most private rentals, landlords must use it for new leases, and if a tenant asks in writing and does not receive it within 21 days, the tenant may withhold one month's rent.
• Any rent deposit. The only security deposit a landlord may collect is a rent deposit, no more than one rent period or one month's rent, whichever is less, and it earns annual interest at the rent increase guideline rate.
• Whether any term, such as a demand for post-dated cheques, is one the law does not allow.

Checks to make before closing

A tenanted purchase works best when you know the facts before you are committed. These points are worth raising with your lawyer.

• Get a copy of the lease and any side agreements or amendments.
• Confirm the current rent, whether rent is paid up, and what deposit the seller holds.
• If you plan to move in, ask how the purchaser's-use notice will be handled, because the notice comes from the seller after an agreement is signed.
• Agree in writing who deals with the notice and the compensation, remembering that the payment stays the seller's obligation.
• If it is a condominium that was converted, ask whether it is subject to the protection for tenants at the time of registration.
• Ask whether the municipality requires a licence or registration for the rental. This depends on the local by-law.
• If there is a second unit, ask about the building permit and electrical permit, and about fire separation and alarms.

What to do next

Before you make an offer or waive conditions, have a lawyer read the lease and the agreement of purchase and sale together. If you want vacant possession, raise that early, because it affects how the deal is structured and who carries the obligations. Keep copies of everything you receive from the seller.

Frequently asked questions