Buying a Tenanted Rental in London With No Lease on File

The situation

Nikhil worked as a bookkeeper for a small accounting practice and had spent three years building up savings for a down payment on an investment property. He found a small legal duplex in London listed at roughly $475,000, with one unit already rented. The listing described it as a turnkey rental with "an excellent long-term tenant in place," which was part of the appeal — Nikhil had no interest in finding and screening a tenant himself, and the idea of buying a property that already generated rent from day one was exactly what he had been looking for.

The seller, Andriy, had owned the duplex for about six years and had rented out the lower unit to the same tenant, Oksana, for most of that time. Andriy managed the property himself, without a property manager, and described the arrangement to Nikhil's real estate agent as simple and trouble-free: Oksana paid her rent on time, kept the unit in good condition, and the two of them had never had a disagreement worth mentioning. On paper, it looked like precisely the kind of stable, low-maintenance rental a first-time investor hopes to find. Nikhil brought the agreement of purchase and sale to Treadstone Law before the conditional deadline expired, mainly expecting a routine review of the closing mechanics.

What the paperwork couldn't answer

When our team asked for a copy of the tenancy agreement as part of the standard document review, Andriy's agent came back with nothing. There had never been a written lease. Oksana had moved in six years earlier on a verbal agreement with Andriy, paying an agreed monthly rent in cash, with no lease, no record of a rent deposit, and no paper trail showing whether or when the rent had ever been increased.

In Ontario, a residential tenancy does not depend on having a written lease to exist. Under the Residential Tenancies Act, 2006, a tenant who has been living in a unit and paying rent has the same legal protections whether or not anything was ever signed, and a new owner who buys a tenanted property automatically becomes the landlord, bound by the tenancy on whatever terms it actually operates under. Buying a rental property does not give a new owner the right to end an existing tenancy just because ownership changed hands — the tenant stays, with the same rights they had the day before the sale closed. For an investor, that is usually a feature, not a problem: an income-producing tenancy is exactly what Nikhil was buying. The problem was that nobody could say with any confidence what the actual terms of that tenancy were.

Three gaps mattered in particular. First, there was no record of a last month's rent deposit, which landlords are entitled to collect at the start of a tenancy and which is meant to be applied to the tenant's final month before move-out. Andriy could not say whether he had ever collected one, and Oksana's memory of the arrangement, relayed through Andriy, was vague. If no deposit had been collected, Nikhil would be inheriting a tenancy without one, and there is no straightforward way to collect a deposit retroactively from a tenant who is already in place and paying rent as agreed. Second, there was no documented history of rent increases. Ontario limits how much a landlord can raise rent each year through a provincial guideline, and increases are only valid if proper written notice was given in advance. Without records, there was no way to confirm whether Oksana's rent had ever been raised in line with the guideline, or whether it had simply stayed flat by informal agreement — which would matter enormously to what Nikhil could lawfully charge going forward. Third, and most immediately, there was no way to confirm the rent Oksana was actually paying matched what Andriy had told the listing agent. Andriy quoted a monthly rent of about $1,450. Nikhil had budgeted his financing around that figure covering roughly a third of his carrying costs on the property. If the real number was lower, his numbers on the whole deal changed.

What we did

1. Required written confirmation directly from the tenant. Rather than relying on Andriy's account, our team asked that Oksana confirm in writing, before closing, the rent she was currently paying, her move-in date, and whether a last month's rent deposit had ever been collected. This put the facts on record from the person who actually held the tenancy, not secondhand through the seller.
2. Built a rent adjustment into the agreement. Oksana confirmed she was paying $1,400 a month, not $1,450 as advertised, and that no deposit had ever been collected. We negotiated a closing adjustment reducing the amount Nikhil paid at closing, reflecting both the lower confirmed rent and a credit equal to one month's rent to make up for the missing deposit Nikhil would otherwise have to absorb the cost of collecting himself.
3. Documented what a written lease could not retroactively fix. A new lease could not be forced on Oksana after six years of an existing verbal tenancy on Andriy's original terms — introducing new conditions after the fact was not something Nikhil could unilaterally impose. Instead, we prepared a written acknowledgment, signed by Oksana before closing, setting out her actual tenancy terms for the record, so that going forward there would be no dispute about the baseline everyone was working from.
4. Confirmed no rent increase could be assumed. With no documented history of previous increases, our advice to Nikhil was to treat the current $1,400 as the confirmed legal rent and plan any future increase strictly around the provincial guideline and the required notice period, rather than assuming he could raise the rent to market levels shortly after closing.
5. Flagged the risk of relying on Andriy's assurances alone. The agreement of purchase and sale was amended to include a specific warranty from Andriy about the tenancy details, giving Nikhil a contractual basis to raise a claim against Andriy if the tenancy turned out to involve facts Andriy had not disclosed and had actually known about.

The outcome

The deal closed, but not on the terms in the original listing. The purchase price adjustment for the lower rent and missing deposit worked out to roughly $6,000 off the closing figures Nikhil had first budgeted for — a real but manageable amount against a purchase price in the mid-$400,000s. Andriy accepted the adjustment rather than risk the deal falling apart close to the firm date, and he was cooperative once it was clear the numbers were coming from Oksana directly rather than a negotiating tactic on Nikhil's side.

The harder-to-quantify cost was on the investment side. Nikhil had underwritten the purchase expecting to bring the rent to something closer to market within a year or so of taking over. With no documented rent history to build from, and Oksana entitled to the same annual guideline increase any other tenant would get, that plan had to be shelved. Any increase would need to follow the standard notice and timing rules like any other tenancy, starting from the confirmed $1,400 baseline — not from a market figure Nikhil might have preferred. That meant slower cash flow growth than his original projections assumed, and it was a genuine trade-off, not a technicality he could negotiate around after the fact.

What Nikhil avoided was worse. Buying the property on the seller's word alone, without confirming the tenancy terms directly, would have left him exposed to a dispute with Oksana down the road — over the deposit, over the actual rent, over what had or had not been promised — with no paper trail to fall back on and no recourse against Andriy once the sale had closed on an as-is basis. The written acknowledgment gave both Nikhil and Oksana a shared, dated record of the tenancy's actual terms, which meant the relationship started on solid ground even if it started smaller than Nikhil had hoped. He kept the tenant, kept the income, and kept his numbers honest — just not the numbers he walked in expecting.

What you can learn from this