Closing on a Tenanted Home in Ontario: Notices, Deposits and Rent Adjustments

Buying or selling a home with tenants in it adds a layer to an ordinary closing. The people living there have rights that do not disappear because ownership changes, and the money tied to the tenancy, such as the rent deposit and this month's rent, has to be sorted out between buyer and seller.

This article explains in plain terms how those pieces generally fit together in Ontario: what happens to the tenancy, when a buyer can ask a tenant to leave for personal use, how rent deposits work, and which closing costs apply. Every deal is different, so treat this as a map of the questions to ask your lawyer.

What happens to the tenants when ownership changes

Under the Residential Tenancies Act, 2006, the word landlord includes the landlord's heirs, assigns, personal representatives and successors in title. In practice, a buyer who takes title steps into the landlord's role. That means the tenant does not need to move out just because the home was sold, and the buyer takes on the landlord's responsibilities from closing.

For a seller, this means you cannot treat a sale as a way to end a tenancy. For a buyer, it means you should know exactly who lives in the home, what rent they pay and on what terms before you remove your conditions. Asking for copies of the lease, proof of the current rent and a written confirmation from the tenants (often called an estoppel-style statement) is a common practical step to discuss with your lawyer.

If the buyer wants to move in: the N12 process

A buyer who wants the unit for their own use cannot simply tell the tenant to leave. The main notice for this situation is the N12. The key features are summarized below.

Compensation is an area where the rules are changing. For notices served before September 21, 2026, the landlord must pay one month's rent or offer another acceptable unit. The Board's brochure says that for notices served on or after September 21, 2026, compensation is not required if the notice gives at least 120 days and meets other criteria. Because that brochure is itself unclear on how the 120-day rule applies to purchaser notices, confirm the current rule on the Tribunals Ontario website or with a lawyer before serving anything.

Rent deposits and who holds what at closing

A landlord can collect a rent deposit of no more than one month's rent, or one week's rent if the tenancy is weekly. The deposit can only be applied as rent for the last month or week of the tenancy and cannot be used for damages. The landlord must also pay interest on the deposit every year.

The rent deposit and the interest on it are worth sorting out before closing. How that is handled on a sale, such as whether the seller credits the buyer with the deposit and the owed interest on closing, depends on the agreement of purchase and sale and the facts of the deal, so it should be written down clearly and confirmed with your lawyer.

• Sellers: gather the tenant's deposit amount, the date it was paid and a record of interest paid so far.
• Buyers: ask for the same information and make sure the statement of adjustments deals with the deposit and any interest owing.
• Both: agree in writing how the deposit will be transferred, so the tenant is not caught in the middle.

Rent adjustments on the closing date

Closing generally involves sorting out who is responsible for which costs and income as of the closing date. When the home is rented, rent is one of the items. How rent that has already been paid, or is still owing, is split depends on your agreement and your situation, so it is worth confirming with a lawyer.

Items to watch include rent paid in advance, rent in arrears, and any amount the tenant is owed. The exact approach is a matter of what the agreement says and what is practical, so it is worth raising early rather than on closing day. Be aware that the specific mechanics are not fixed by a single rule, and your lawyer can tell you what is customary for your type of property.

Other closing costs when the property is rented

The usual costs still apply. Land transfer tax is paid by the buyer when the conveyance is tendered for registration, and a seller does not pay land transfer tax on a sale. Provincial rates are 0.5% up to $55,000, 1.0% from $55,000 to $250,000, 1.5% from $250,000 to $400,000 and 2.0% above $400,000, with 2.5% on the portion above $2,000,000 where the land has one or two single-family residences. Toronto has its own municipal tax on top, which is separate.

On HST, sales of used owner-occupied homes by individuals are usually exempt, and HST at 13% applies to services such as real estate commissions and legal fees. A rented property can raise different questions if the building is mostly non-residential, because a home that is mostly non-residential is treated as two properties. If the property is a rental investment with a seller who has claimed input tax credits, that is an exception worth confirming with an accountant.

If the seller has a mortgage, paying it off early because of the sale can trigger a prepayment penalty. That penalty is usually the higher of three months' interest or the interest rate differential. Sellers should ask the lender for a payout figure well before closing.

What to do next

Whether you are buying or selling, the best preparation is to get the tenancy facts on paper early and involve your lawyer before conditions are removed.

• Get a copy of the lease or written terms, the current rent and the date rent is due.
• Confirm the amount of any rent deposit and the interest paid on it.
• Decide, if you are a buyer, whether you plan to keep the tenants or move in yourself.
• If you plan to move in, ask a lawyer about the N12 process and the current compensation rules before you sign or serve anything.
• Ask your lawyer how the deposit, its interest and the month's rent will appear in the statement of adjustments.
• Sellers: request a mortgage payout statement and ask about any prepayment penalty.
• Confirm your closing date and registration timing with your lawyer.

Frequently asked questions