Tenancies when Buying and Selling Real Estate

If you are buying or selling residential real estate with an existing tenant occupying all or part of the property, it will be important to have a clear understanding of the parties’ expectations with respect to the tenancy. The Residential Tenancy Act (“RTA”) governs the relationship between landlords and residential tenants whether or not there is a written tenancy agreement. The buyer will either need to accept title subject to existing tenancies, or notice must be given to the tenants to vacate the property. If you are selling and the contract promises vacant possession and there are tenants in the property, you could be in breach of that term.

Scenario #1: The Buyer accepts the existing Tenancy

If the buyer does not want the tenant to vacate and accepts the tenancy, the Contract of Purchase and Sale (“CPS”)  should include the tenancy and contain representations as to the status of the tenancy, monthly rent and any security deposits held by the seller (which will be adjusted for on closing if necessary). A formal assignment of the tenancy agreement to the buyer and notice to the tenant of the change of ownership are additional documents to consider obtaining on closing.

Scenario #2: The Buyer wants Vacant Possession

If the buyer wants vacant possession on the possession date, the CPS should provide that the buyer may request that the seller serve a notice to end tenancy to the tenant on behalf of the buyer under s. 49 of the RTA. This notice can only be given after all subjects have been removed, and the notice period must be no less than 2 months from the day before the day rent is payable in a month-to-month tenancy, or no earlier than the specified end-date of a fixed-term tenancy. The tenant will have a prescribed number of days to dispute a notice to end tenancy, depending on the type of notice.

Compensation is due to a tenant who receives a notice to end a tenancy under section 49 of the RTA, which entitles them to receive an amount equal to one month’s rent payable under the tenancy agreement from the landlord on or before the effective date of the landlord’s notice. Additionally, as a penalty to dissuade buyers from terminating a tenancy on fictitious grounds, if the stated purpose for ending the tenancy was not achieved within a reasonable period after the effective date of the notice and continued for at least 6 months the tenant may claim an amount equal to 12 times the monthly rent payable under the tenancy agreement from the purchaser who gave the misleading notice.

Scenario #3: The Seller becomes a Tenant of the Buyer and remains in the Property

Another scenario that may arise is when the buyer agrees to allow the seller to continue to occupy the property following closing. In this case the buyer should be aware of the limited circumstances under the RTA in which a landlord may require a tenant to vacate when the seller remains in the property. The landlord may give notice to end tenancy as follows:

• with two months’ notice if the landlord or a close family member of the buyer intends in good faith at the time of entering into the tenancy agreement to occupy the rental unit at the end of the term;
• on at least four-months’ notice if the landlord intends to demolish the property, which cannot be given until the necessary demolition permits have been obtained by the buyer;
• if both parties sign a mutual agreement to end the tenancy;
• if the tenant has breached a material term of the tenancy or for cause (e.g. non-payment of rent or damage to the property); or
• a Residential Tenancy Branch arbitrator has ordered the tenancy to end.

Scenario #4: Buyer takes Early Possession

Another tenancy arrangement, although rare, is an agreement for the buyer to take early possession of the property from the seller before closing. In this situation, the purchase contract should refer to the right of occupancy as a license to occupy and not as a tenancy to avoid application of the RTA and set out that the license terminates automatically on the completion date if the purchaser fails to complete with no right to overhold.

If you would like further information on this topic, our real estate lawyers are always happy to speak with you.

© Linley Welwood LLP. The contents of this article do not constitute legal advice. Readers should seek legal advice in relation to their own specific circumstances.