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Buying a Home with a Tenant in Place: What Buyers and Sellers Need to Know

The Ontario real estate market continues to evolve, and the sale of residential properties with tenants still in place is becoming increasingly common. Whether you’re a buyer, seller, or real estate professional, it’s crucial to understand the legal landscape that governs these transactions under Ontario law.

Here’s what you need to know about buying or selling a tenanted property in Ontario and the potential risks if the rules aren’t followed.

Can a Property Be Sold with Tenants?

Yes. A landlord is permitted to sell a property with a tenant still living in it. However, the lease doesn’t simply vanish when ownership changes. Instead, under the Residential Tenancies Act (RTA), the tenant’s rights go with the property, meaning the buyer steps into the seller’s shoes as the new landlord.

In legal terms, the lease is said to “run with the land.”

Month-to-Month vs. Fixed-Term Leases

  • Fixed-Term Lease: If a tenant has a lease that hasn’t yet expired, the buyer must honour the remaining term.
  • Month-to-Month Tenancy: Even when a lease has become month-to-month (which happens automatically when the fixed term ends and the tenant stays), the new owner still has obligations.

A buyer cannot simply ask the tenant to leave unless very specific criteria are met.

When Can a Buyer End a Tenancy?

If the buyer wants to move into the property (or have an immediate family member do so), they may be able to issue an N12 notice, but there are strict requirements:

  • The buyer must genuinely intend to occupy the unit for at least one year.
  • The buyer must serve at least 60 days’ notice to the tenant, aligned with the end of a rental period.
  • A compensation payment of one month’s rent must be provided to the tenant before the termination date.

Warning: Falsely claiming personal use to evict a tenant is illegal and can result in significant penalties, including fines up to $50,000 for individuals or $250,000 for corporations under the RTA.

Pitfalls for Sellers

Sellers often assume they can provide “vacant possession” without verifying if the buyer qualifies to end the tenancy. This can backfire, especially if:

  • The buyer is an investor and has no legal grounds to evict.
  • The tenant refuses to leave and asserts their rights under the RTA.
  • The Agreement of Purchase and Sale (APS) contains a representation or warranty that the property will be vacant.

In these cases, the seller could be found in breach of contract.

Tips for Buyers and Sellers

For Buyers:

  • Confirm whether the unit is occupied.
  • Review the lease and any extensions or modifications.
  • Consult a real estate lawyer to determine if your intended use qualifies for tenant eviction under the RTA.

For Sellers:

  • Don’t promise vacant possession unless you’re sure it can be delivered.
  • Disclose all tenancy details accurately.
  • Coordinate the timing of closing and any required notices with your legal counsel.

Navigating the sale or purchase of a tenanted property in Ontario requires careful attention to the law. Whether you’re a first-time buyer or a seasoned investor, consulting an experienced real estate lawyer can help you avoid disputes and close the deal with confidence.

At Delaney’s Law Firm, we regularly advise clients on complex residential real estate transactions, including those involving tenancies. If you’re considering buying or selling a tenanted property, contact us today to schedule a consultation.