Selling a tenanted property in Ontario without breaking the rules

In Ontario a residential tenancy attaches to the property, not to the landlord. When you sell, the buyer steps into your shoes on closing: the lease, whether written, oral or a fixed term that has rolled into month to month, continues on the same terms, the rent stays where it is, and the buyer becomes the landlord for every purpose under the Residential Tenancies Act. A fixed-term lease does not end on its last day; the tenant simply continues month to month unless they give notice or sign an agreement to leave. The last month's rent deposit you collected is credited to the buyer on the statement of adjustments, with the interest the Act required you to pay each year, and the buyer takes over the obligation to apply it to the tenant's final month. Rent increases follow the tenant, too. A unit first occupied for residential purposes before November 15, 2018 is subject to the annual guideline; a unit first occupied after that date is exempt from the guideline, though the once-a-year timing and the ninety-day written notice still apply. Buyers, and above all their lawyers, will ask for the lease, a rent ledger, the deposit history and any notices served, so assemble that file before listing.

Under section 27 of the Residential Tenancies Act a landlord, or a brokerage the landlord has authorized in writing, may enter a rental unit to show it to a prospective purchaser once the tenant has received written notice a full day in advance. The notice must state the reason, the day, and a time of entry between 8 a.m. and 8 p.m. It can be handed to the tenant, left in the mailbox or, where the tenant has agreed in writing to email, sent that way. The tenant does not have to be home and does not have to agree, but is entitled to be present and is not required to tidy up or leave. Everything beyond that is negotiated. The Miller team proposes a showing schedule with the tenant in advance, two or three blocks a week rather than a call at nine for a showing at ten, and uses a lockbox only with the tenant's consent. Photographs of the tenant's belongings and virtual tours are not covered by the entry provisions and are best done with the tenant's written agreement or after they move out. Open houses are rarely worth the friction in an occupied unit. Entry without proper notice can lead to a tenant application at the Landlord and Tenant Board, and it makes a delicate sale harder.

Every tenanted listing has to choose its buyer before it chooses its price. Sold with the tenant in place, the property appeals to investors who value a paying tenant, a clean ledger and no vacancy on day one; the sale can close on any date, no notices are needed, and the tenant simply receives a letter with the new landlord's name and where to pay. Sold with vacant possession, the property opens up to buyers who want to live in it, which in Durham is the larger pool for a house and often for a condo, but vacancy has to be achieved lawfully first. There are three routes. The tenant may choose to leave, giving 60 days' notice to the end of a rental period on an N9. The tenant and landlord may sign an N11 agreement to end the tenancy on a date they both accept, sometimes with a payment that compensates the tenant for the move; this must be voluntary. Or a purchaser who intends to live there may have an N12 served on their behalf, described in the next section. What a seller should never do is promise vacant possession in the agreement of purchase and sale without having it, because if the tenant stays, the seller is in breach on closing day.

Section 49 of the Act allows a landlord who has signed an agreement of purchase and sale to serve an N12 on the purchaser's behalf when the buyer genuinely intends to live in the unit, or to house a spouse, a child or parent of either, or a caregiver there. It is available only where the residential complex contains no more than three residential units, or where the unit is a condominium unit. The termination date has to fall at least 60 days out from the day the notice is served, landing on the final day of a rental period or, for a fixed-term lease, the end of the term. The seller, as the current landlord, must pay the tenant one month's rent in compensation, or offer another unit acceptable to the tenant, no later than the termination date, and the purchase agreement should say who ultimately bears that cost. The purchaser signs a declaration of good faith; a unit re-rented or relisted within a year of the tenant leaving is presumed bad faith, and the tenant can apply for a remedy within two years. The tenant may leave earlier on ten days' notice. If the tenant stays past the date, only a Board order and the Sheriff can end the tenancy, which takes months, so N12 closing dates need room.

TRESA requires a seller and their brokerage to disclose material facts, and on a rental property most of them are legal. If the listing describes a second unit, the buyer is entitled to know whether it is a registered two-unit house under Oshawa's by-law, or an accessory apartment permitted and registered under the zoning in Whitby, Ajax, Pickering or Clarington, with the paperwork to prove it. Marketing an unregistered basement as an income suite invites a claim after closing. The listing should state that the property is tenanted, the monthly rent, whether the lease is fixed or month to month, whether the unit is subject to the rent increase guideline, and whether vacant possession is available and by what route. Student houses near the Ontario Tech and Durham College campus at Simcoe Street North and Conlin Road carry two more checks: whether the house falls inside the area covered by Oshawa's residential rental housing licensing by-law and holds a licence, and how many bedrooms the licence and the fire code allow, because a house rented by the room to six students is a different listing from a house rented to one family. Leases with parent guarantors, September to April terms and rent paid in cash all need to be on paper before a buyer's lawyer sees the file.

A cooperative tenant is the most valuable thing a tenanted listing can have, and cooperation is earned, not served. Tell the tenant before the sign goes up, in person if you can and in writing regardless, and explain which route you are taking: if you are selling to an investor, say that their tenancy continues unchanged and that their deposit follows them; if you are seeking vacant possession, say what notice you intend to use and what compensation applies. Offer something in exchange for showings, a reduced rent for the listing month, a cleaning service, a firm cap on showing hours; the cost is small next to a listing that shows badly. Then price for the pool you have chosen. An investor prices the property on the rent actually being paid and the ledger you can prove, so a tenant paying well under the going rate narrows that pool, and there is no lawful way to raise the rent beyond the guideline while they remain. An end-user buyer prices it as a home and discounts for the uncertainty of an N12. The Miller team runs both numbers before advising which way to go, and the answer in Oshawa is often different from the answer in Pickering.

Before you serve any notice or sign any listing on a rented property, ask the Miller team to review the lease, the ledger and the buyer pool, so the route you choose is the one that actually closes.