With so many buyers looking for the ideal living space in Toronto, a nice piece of real estate is bound to attract attention—whether it’s vacant, tenanted or owner-occupied. For this reason, the sale of tenanted properties is far from uncommon in our market. While these transactions can be smooth for both parties, they tend to be more complex than typical real estate deals.
If you’re thinking of buying a property with tenants or putting one on the market, here’s what you should know…
Buying a tenanted property
After pouring through listings and viewing countless homes, it’s happened. You’ve found the absolute perfect place. There’s just one element of the listing that could be a potential impediment to a smooth purchase—the property is home to tenants.
Whether you’re looking for your dream home, an investment, or an attractive living space to live in with income, purchasing a property is bound to be trickier if it’s occupied by tenants. Here’s what you should be aware of before you commit to buying.
Planning to move in?
Let’s say you’ve found a condo that checks all your boxes—and you’re ready to move in, asap. The bad news is, if the space is tenanted, your closing will have to accommodate the tenant and follow the legislation that protects the tenant’s rights. If the tenant has a lease you can’t ask a seller to evict the tenant before you buy, nor can you do so yourself once the deal is done. If the renter’s lease term hasn’t expired, they have every right to stay put. If the tenant is month-to-month the options are different.
You can request vacant possession as a condition of your offer—and encourage the seller to incentivize the tenant to leave. For the right price, many renters will agree to do just that! Make sure you receive a complete N11 form (the Agreement to Terminate the Tenancy) if you go this route.
Wondering what happens if the tenant is renting month to month? You can ask them to vacate if you or a direct relative plan to move in, but you need to give 60 days notice (starting from the first of the month). You must also provide them with an N12 form (the Notice for Landlord’s Own Use).
Ready to become a landlord?
Renting out a living space can be a great source of income. But if the property you have your eye on is occupied, it could put some limitations on what you can do as a landlord.
You can’t evict a tenant in order to rent a property out for more money. Of course, they may accept a financial incentive to leave (once again, you’ll want to do things right by getting them to complete that N11 form). But what if they want to stay?
First of all, when the tenant’s lease does come up, they can start renting month to month. You might want to ask them to sign a new one with you, but they certainly don’t have to. Not only that, but doing so may not be in your best interest (since you won’t be able to take over the property for personal use during the term of their lease). In terms of a rent increase, starting in 2020, you can raise their rent by 2.2 per cent—so long as 12 months have passed since their last increase.
Cause for eviction
If a tenant is already month to month when you take possession of a property, you can evict them under certain circumstances. If you or a direct family member plan to move in, you can give them an N12 (with 60 days notice). Word to the wise: some landlords will make it appear as though they’re moving into a property, when in reality they just want a pretense to raise the rent. In addition to being unethical, this can result in a very hefty fine—take it from me, it’s not worth it!
In some cases, landlords also evict tenants to perform extensive renovations. To do so, you’ll need to provide them with 120 days notice and an N13. Basically, this form indicates that a tenant is being evicted because their unit is being demolished, repaired, or converted. It’s important to note that you must give them the option of moving back in (for the same rent) once the work is complete. You will also be required to provide compensation, whether they move back in or not.
One last thing to note. We all know that in Toronto, affordable housing can be hard to find. It goes without saying that as a landlord, you’d like to see a healthy return on your property. Just don’t forget to consider the situation that long-term tenants find themselves in when they are asked to move out. A little understanding can go a long way!
Selling a tenanted property
Remember when you first became a real estate investor? You may have been dreaming of the day when you would sell your property and enjoy a major payday. But I doubt you were thinking about the selling process—or the rights your tenant would have when you put your investment on the market.
In most cases, it’s a good idea for landlords to brush up on the Residential Tenancies Act before selling. Your real estate agent can help ensure that you know your responsibilities inside and out. Here are a few other things to keep in mind.
This should go without saying, but you can’t evict a tenant simply because someone else wants to buy your property. You need to find a buyer who will purchase it while it’s still tenanted—whether that means assuming the lease, or taking on a month-to-month tenant. The other option is to incentivize your renter to leave.
If you have a buyer who’s only interested in your property if it’s vacant, offering your current tenant a nice chunk of change to evacuate peacefully may be worthwhile. It’s perfectly legal. Just make sure you have them complete an N11 form (the Agreement to Terminate Tenancy).
Of course, an investor may be willing to take on your current tenant. But buyers who want to move into your property (or have a direct family member do so) are a different story. If your tenant is no longer on a lease, they’re entitled to 60 days notice before this transition occurs.
Your buyer will probably want to get the process started as early as possible, in which case you’ll need to provide your tenant with their notice—and an N12 form (the Notice for Landlord’s Own Use).
In my experience, one of the biggest challenges of selling a tenanted property is the lack of control landlords have. More often than not, staging and gorgeous listing photos are critical to generating interest and getting top dollar for a home. Preparing a space that someone else is living in can be a challenge. That’s especially true if they’re on the messy side—or their taste in decor is…well, let’s just say, a little unique.
You also have to give your tenant ample notice (24 hours) before entering their home. So setting up last-minute showings might not work out. For this reason, it may be worth your while to see if your tenant will accept some money to leave early—which will allow you to work with an empty space.
Whether or not your renter is willing to vacate, I have some good news. Most tenants are fairly cooperative. Many will ensure that their space is clean for showings, and most will try to accommodate your timelines. So long as you treat your tenants with kindness and respect, (and price correctly so that the home is on the market for a reasonable period!) there’s a very good chance that they’ll do the same for you.
How an agent can help
Whether you’re buying or selling a tenanted property, things can get complicated. That’s why it’s so important to have an experienced agent by your side. From timing your transaction to explaining the forms and paperwork involved, the right real estate agent can help ensure that your best interests are served—until closing, and beyond!
Thinking of buying or selling a property? Whatever the circumstances, I can help you navigate the process for a successful transaction. Get in touch to learn how!