Two Sisters Buy a Tenanted Duplex in Midland the Right Way

The situation

Miriam worked as a landscaper and her younger sister Sophia as a security guard, and for two years the two of them had been saving toward a shared goal: a small rental property they could split the costs and income on. Neither could have qualified for the mortgage they wanted on her own income alone, but together, with two incomes and two down payments, a legal duplex in Midland came within reach. They found one listed at roughly $520,000 — a semi-detached property with a two-bedroom unit upstairs and a one-bedroom unit on the main floor, both occupied.

The listing described the property as fully tenanted with 'reliable long-term tenants,' which was part of why the sisters were interested. Buying a property with existing tenants meant rental income from the first day of ownership, without the cost and delay of advertising for new tenants or vetting applicants themselves. The seller's agent supplied a one-page summary of the two tenancies: monthly rent for each unit, and a note that both tenants had paid a deposit equal to one month's rent when they moved in. Miriam and Sophia signed the agreement of purchase and sale on the strength of that summary and brought it to Treadstone Law for review before the conditional period closed.

The sisters had agreed between themselves, informally, that Miriam would handle maintenance and Sophia would manage the books, splitting profit and expenses evenly down the middle. Neither of them had ever been a landlord before, and both assumed that an occupied, income-producing property would be simpler to take over than an empty one. In many respects that assumption is a reasonable starting point — an existing tenancy does mean the new owner does not need to advertise, screen applicants or wait out a vacancy. But it also means the new owner is legally stepping into a relationship someone else negotiated, on terms someone else recorded, or in this case, largely did not.

What the review found

Ontario's Residential Tenancies Act allows a landlord to collect a last month's rent deposit from a new tenant, but that deposit belongs to the tenant, not the landlord. It has to be applied to the tenant's final month of occupancy when the tenancy ends, and in the meantime the landlord owes the tenant annual interest on it, calculated using a rate the province sets each year. Crucially, when a rental property is sold, the last month's rent deposit does not stay with the seller — it transfers to the buyer, along with the obligation to eventually apply it and to keep paying interest on it. This is one of the most commonly missed details in a tenanted purchase, because the deposit isn't a line item on the closing statement the way property tax adjustments are; it has to be tracked down and accounted for separately.

Our team requested the seller's ledger for both units, showing exactly when each deposit was collected, how much interest had accrued, and whether any of it had already been credited toward rent. The upstairs tenant's deposit was straightforward: collected two years earlier, with a small, calculable amount of accrued interest. The main-floor tenant's file was not straightforward. That tenant had lived in the unit for six years, through two prior ownership changes, and the deposit history had clearly not been carried forward accurately each time the property changed hands. The seller's own paperwork showed a deposit collected at move-in, but no record of interest ever being paid or credited, and the amount on file did not match what the tenant told our team when we made contact to confirm the tenancy terms directly.

There was a second issue. The main-floor unit had no signed lease on file at all — only a handwritten note referencing a monthly rent figure. Without a lease, the sisters would have no documented proof of what rent was actually owed, when it was due, or what the tenancy terms were beyond whatever the tenant confirmed verbally. Buying a property means stepping into the landlord's existing legal relationship with the tenant exactly as it stands; it does not create an opportunity to impose new terms on a sitting tenant.

What we did

1. Verified both tenancies directly with the tenants. Rather than relying solely on the seller's summary, our team contacted each tenant directly and confirmed rent amounts, payment history and deposit amounts in writing, before the conditional period expired. Sellers' summaries are prepared from whatever records happen to have survived, and in a property that has changed hands more than once, that record is often incomplete or simply wrong. Going to the source surfaced the discrepancy on the main-floor unit early enough for our team to still act on it before closing.
2. Calculated the true deposit owing, including six years of accrued interest. A last month's rent deposit is not a static number; the landlord owes annual interest on it at a rate the province publishes each year, and that interest compounds the longer a deposit sits uncredited. Using those published rates, our team reconstructed what the main-floor tenant was actually owed across six years of ownership changes — a figure roughly $650 higher than the seller's ledger showed, since none of the prior owners had ever paid or credited the interest.
3. Negotiated a credit at closing rather than delaying the deal. Asking the seller to track down and correct years of missing records from prior owners would have taken time neither side had, and risked the sisters losing the property to a competing buyer while the paperwork was sorted out. Instead, our team negotiated a direct credit to Miriam and Sophia at closing equal to the corrected deposit-plus-interest amount, so they would not be out of pocket for a shortfall that was really the seller's responsibility to cover, not theirs.
4. Required a written lease be put in place before closing. Our team advised that closing should not proceed while the main-floor tenancy rested on nothing more than a handwritten rent note, since that left no reliable record of what rent, notice periods or terms the sisters were actually inheriting as landlords. The seller's agent arranged for the existing month-to-month terms to be documented properly and signed before the sale completed, giving both the sisters and the tenant a shared reference point from day one.
5. Prepared a clean statement of adjustments reflecting both deposits. The closing documents were drafted to show both last month's rent deposits, and the accrued interest owing on each, transferring correctly from seller to buyers as a matter of record rather than a verbal understanding. This mattered because Miriam and Sophia were also splitting ownership between themselves, and accurate paperwork at the outset meant neither sister would later have to guess what the property's true obligations were.

The outcome

The sale closed roughly on schedule, with only a short delay to finalize the written lease and confirm the corrected deposit figures with the seller's lawyer. Miriam and Sophia received the closing credit for the under-recorded deposit and interest, meaning they took on the eventual obligation to repay it to their tenant without having to fund the shortfall themselves. Both tenancies were properly documented for the first time in years, giving the sisters — and their tenants — a clear written record to rely on going forward.

Because the deposit issue was caught and resolved before closing rather than discovered afterward, the sisters avoided what could have become an awkward dispute with a long-standing tenant over money the seller should have accounted for. It also meant they started their first landlord experience with clean books, which mattered given that they were splitting ownership, income and expenses between two people and would need accurate records to manage that partnership fairly.

A few months after closing, Miriam mentioned to our team that the main-floor tenant had specifically thanked them for the new written lease — after six years of an informal arrangement passed between three different owners, the tenant said it was the first time anyone had actually put the terms of the tenancy in writing. For Miriam and Sophia, the episode became something of a template for how they wanted to run the rest of the property: not cutting corners on paperwork just because a deal seemed straightforward on paper, and treating the tenant relationship as one worth documenting properly from the start rather than inheriting someone else's shortcuts.

What you can learn from this