Buying a home with tenants in Ontario can be complex, involving more than just a simple buyer and seller arrangement. Whether you plan to live in the home or use it as an income property, understanding the legal and practical implications of purchasing a tenanted property is crucial.

Existing Leases and Legal Implications

When you buy a home with tenants, the existing lease remains in effect even after the closing date. As the new owner, you inherit the lease terms, including the rental rate and conditions. This means you cannot evict the tenants simply because you want to occupy the property. The terms of the lease should be clearly outlined in the Agreement of Purchase and Sale. While you can negotiate a closing date that aligns with the end of the lease, you cannot force the current owner to evict the tenants.

Month-to-Month Tenancy

If tenants are on a month-to-month lease, there are more options for obtaining vacant possession. You can include a condition in your offer that requires the seller to deliver the property vacant. To legally end a month-to-month tenancy, the seller must provide the tenants with a 60-day notice in writing and offer compensation equivalent to one month’s rent. This termination is only valid if you, a family member, or a caregiver will occupy the unit. Using this clause to evict tenants to raise the rent is illegal and can result in legal action against you.

Becoming a Landlord

If you decide to keep the tenants, you must honor the existing lease agreement, including the rent amount. In Ontario, rent increases are regulated, with the annual increase capped by the provincial government, typically around 2.2%. While you can ask month-to-month tenants to sign a new lease at a higher rent, they are not obligated to agree. Offering financial incentives, known as “cash for keys,” may encourage tenants to vacate, allowing you to potentially increase the rent for new tenants. Any agreement to terminate tenancy must be formalized using an N11 form.

Renovations and Tenant Rights

If you plan to renovate the property, you can legally evict tenants to perform major renovations by providing a 120-day notice. However, tenants have the right to return to their unit after renovations at the same rent, known as the “right of first refusal.” Tenants must notify you before moving out if they wish to return post-renovation.

Legal Considerations and Compliance

Understanding and complying with the Residential Tenancies Act is essential when buying a home with tenants. This law governs the relationship between landlords and tenants, and non-compliance can lead to significant legal and financial consequences. Consulting an experienced real estate lawyer can help ensure you are fully informed about your obligations and rights, and that your purchase agreement includes all necessary stipulations.

The complexities of buying a tenanted property requires careful consideration and adherence to legal requirements. By understanding the implications of existing leases, tenant rights, and landlord responsibilities, you can make informed decisions and avoid potential pitfalls.