Navigating the Ontario Real Estate Landscape: Sell Your Tenanted Property Like a Pro!
I recently had a client call me to list her property, she had no other option but to sell. The basement had been rented for over a decade to the same person, who had never had her rent increased, and so was paying well below market rent.
Despite having ample notice of listing (almost 5 months), when it came time to put the house on the market she made it clear that she had no plans to move as she had nowhere to go, and would be fighting any eviction via the LTB. This was now a material fact that had to be disclosed and a big red flag attached to our listing.
The decision to sell a home is often a difficult one to make. For most, there are both emotional and financial considerations that need to be taken into account before you even begin to prepare the home for market. One important item that your Realtor will ask you is whether you currently live in the home, and if any part of it is rented. Owner-occupied listings are more straightforward, the individual or family living in the home are the ones selling the home, and therefore will be moving from the home as planned on closing. Selling a tenanted property is more nuanced.
There has been a pronounced shift in sentiments between landlords and tenants in recent years, with building resentment on both sides. Tenants, in particular those who have been renting the same unit for a number of years, are being forced out of their homes and communities where they can no longer afford to rent. Landlords, who have very few rights once they lease a property to someone, are feeling a lack of control over a very expensive asset. The stories of rentals gone wrong can be downright terrifying for either side, from tenants not paying rent for months at a stretch, costly payouts for landlords (amounting to extortion at times IMO), and lengthy wait times at the Landlord Tenant Board (LTB) for hearings.
Where do you start?
First and foremost, talk to your Realtor as this will affect how the property gets marketed. Your Realtor will likely advise you to reach out to a paralegal with experience in dealing with the LTB. They will be able to walk you through the process, explaining everyones rights, the proper notices to file and when to file them, and any other considerations that you and your Realtor may want to consider in order to best market your home for sale.
Know your Rights
The Seller/Landlord:
As the Landlord and homeowner, your one basic right when it comes to asking a tenant to leave is for your own personal use, that of an immediate family member, or someone providing care to an immediate family member (N12). You are required to give a minimum of 60 days notice that you are reclaiming your space, and you must keep that space for personal use for a minimum of one year.
Despite what you may think, a Seller CANNOT evict a tenant to sell a property. They can ask, and offer compensation for an agreed-upon end date (“cash-for-keys”), but otherwise you must sell the tenant with the property – especially if the tenant is within the first year of their Lease Agreement.
The Buyer:
Once there is a fully executed Agreement of Purchase and Sale (APS), the Buyer has the right to evict a tenant in a property they have purchased with 60 days notice provided they are doing so for their own personal use, that of an immediate family member, or someone providing care to an immediate family member.
A caveat to any sale of a property is that the Buyer is entitled to vacant possession, without this (or an agreement in writing stating otherwise) the seller would be considered in default, and concessions, including cancellation of the Agreement, will have to be made. In an ideal world, when selling a tenanted home, the Seller and Realtor will either have made a deal with the tenants to leave by a certain date (N11) or will have communicated that the Tenant is willing to stay (Buyer assumes the lease). If the Buyer decides to reclaim the rental unit for their own use, they will often include a clause in the APS directing the seller to deliver the proper notices to the Tenant.
The Tenant:
Tenants are entitled to a MINIMUM of one month’s rent as compensation for having to move, to help them with the future first-and-last month’s rent deposit they will have to pay on a new rental. Most landlords will offer 2-3 months rent + moving costs as an incentive to the tenant to agree to move, but really it’s up to the Landlord and Tenant to decide what they feel is fair.
Tenants are entitled to a MINIMUM of 60 days’ notice to end their tenancy (they must also give 60 days’ notice if they are choosing to end their tenancy). If they have signed an N11, they have the option of leaving earlier with 10 days notice.
Tenants are entitled to 24 hours’ notice of any showings. They do not have to vacate the premises, but they cannot restrict access. Often, your Realtor will work with the tenants allowing them to approve or deny the showings. I always ask that if a tenant has to deny a showing they recommend another time that does work. To be clear, the tenant is entitled to 24-hour notice, not the ability to approve or deny showings.
In the case of no-fault evictions (see NOTE), tenants are entitled to a minimum of one month’s rent in compensation for having to move unexpectedly. Often, if a tenant decides to take an eviction notice to the LTB, the most they can hope for is one month’s rent and a reasonable period to vacate (provided all forms and notices have been properly filed with the LTB)*
NOTE: Aside from an owner’s personal use (no-fault eviction), Tenants can only be evicted for specific reasons as outlined in the Residential Tenancies Act (RTA). These include, but are not limited to: non-payment of rent, persistent late payment of rent, willful damage to the property, and interference with reasonable enjoyment by other tenants. In any case, the reason for eviction must be valid.
Know your Notices
The two notices you need to familiarize yourself with as a Landlord looking to divest of an income property are the N11 and N12, both available for download, with instructions, from the Landlord Tenant Board.
N11 – Agreement to End a Tenancy
This is often the easiest and best approach to end a tenancy, however, it must be mutually agreed to and signed by all parties to the Lease Agreement (Landlord and Tenant). As a Landlord, this can be costly as most tenants have been educated to ask for a full year’s rent at market rates, plus moving costs. In my opinion, this is at its essence extortion, but often a Landlord’s hands are tied if the Tenant is proving problematic.
An agreement to End the Tenancy is invalid if it was signed at the same time as the Lease Agreement (ie. it cannot be used as a condition to securing the Lease); it is considered invalid if the Tenant can prove they were coerced into signing. The N11 is also void 30 days after the end date agreed to if the tenant hasn’t moved out and the Landlord failed to file the N11 with the LTB.
N12 – Notice to End a Tenancy
There are strict guidelines for using the N12, all pertaining to the intended use of the rental unit. An owner (current or future) may evict a tenant for themselves, an immediate family member, or someone providing care to an immediate family member, provided there are no more than 3 rental units in the dwelling. If you are delivering the notice on behalf of new owners, you must have a fully executed agreement of purchase and sale.
Tenants are entitled to a minimum of 60 days’ notice (with an option to leave early with 10 days written notice) and one month’s rent as compensation unless you are able to offer them an alternate unit that they are happy with.
Once the N12 has been delivered to the Tenant, it is important to apply to the LTB within 30 days for an order to terminate (L2) along with a certificate of service letting the LTB know how the N12 was delivered.
There are some restrictions when issuing an N12 which can be found here.
An N12 will always be your strongest option. A tenant with a signed N11 can still make a motion to set the eviction aside, which will lead to a hearing with the LTB and delay any potential sale closing or planned work you may have lined up for the space. By issuing (and filing) the N12 with the appropriate forms, if your tenant does not vacate by the end of the 60 day notice, you can notify the LTB and get the hearing process started.
NOTE: An important caveat to any Agreement of Purchase and Sale is that the buyer is entitled to vacant possession. The inability to provide vacant possession on closing if your tenant fails to leave may result in default and the buyers will then have a right to walk away from the deal. Should this happen, you will need to re-list and sell again before you get to the LTB hearing – the key is to have a fully executed APS, it doesn’t matter if the buyers have changed since you first applied.
Know the Nuances
There are so many variables to consider when selling a tenanted home, most importantly the relationship that exists between the Landlord and Tenant. I have empathy for both Landlords AND Tenants in today’s market. Tenants are sometimes required to tolerate unhealthy living conditions and harassment from scumlords, often facing a costly rent hike if forced to move. Landlords must endure often long periods of unpaid rent, sabotaged sales, destruction of property, and what to me sometimes amounts to extortion if required to pay a Tenant to vacate.
If you are contemplating selling a tenanted property, I recommend having an open and honest conversation with your Tenant. Work with them to establish a plan, ensuring they have more than enough time to weigh their options and find alternate accommodations. Empathy (on both sides) goes a long way in the world today.
If discussions between Landlord and Tenant break down, I can’t recommend hiring a paralegal enough to help navigate the process. An experienced paralegal will cut out the noise to ensure a fair, professional, and smooth hearing process. They will ensure forms are filled out and delivered according to the law, filed appropriately and in a timely manner with the LTB, manage correspondence when relationships sour, and most importantly, provide invaluable information and advice until your hearing with the Landlord Tenant Board.
In my opinion, they system is broken and ripe for abuse on both sides. As of writing, wait times for hearings at the LTB are anywhere form 6-8 months for Landlord hearings, and over a year for Tenant hearings, as they work through a serious backlog. The Ontario Government, as part of their focus on affordable housing, should be looking inward at how they protect the rights of both Landlords and Tenants, with faster resolutions to hostile living conditions and delayed evictions.
The reality is that many Realtors will shy away from taking on a tenanted property sale. Often they lack the knowledge about the legal rights of the tenant, the seller and the buyer, or have gotten themselves into a complicated property sale in the past. Be sure to ask your Realtor questions ahead of time so you know you have someone who can help you navigate things properly.
Looking for a Toronto Realtor experienced in selling tenanted properties? I am here to help! Reach out to chat.