The question:
I'm thinking of buying a rental property that is occupied by two separate tenants under lease with the current landlord. I don't want to take on the current tenants because I plan to renovate, move into one unit and rent the other one out. How do I manage to pull this off? I've been told getting tenants out is really hard.
The answer:
Purchasing a rental property can be tricky. Purchasing a tenant-occupied property can be infinitely trickier. But first. the benefits.
Buying a property with one or more tenants can be a very rewarding experience in the situation you describe. You can dramatically decrease your living costs with a tenant subsidizing your mortgage and expenses. Because you can also factor their rent payments into the amount of house you can afford, you increase your purchasing power with the additional projected income.
But as for vacating tenants, my first and most important piece of advice is to be honest and upfront with your intentions. If you are found to be misleading a tenant in your attempt to get them to vacate, you could face a lot of problems.
Okay, with that aside, on to more practical matters. (And here I'm talking about properties in Ontario. Tenancy laws vary from province to province.)
The best approach is to demand from the seller vacant possession of the property on the closing date. To do this, you need to know the date that tenant leases end. If there are multiple tenants and leases end on different days, your closing date will be based around the furthest end date.
Since you will not be the owner/landlord of the property during the lead-up to closing, you should add a clause that says the current owner must provide requisite notice to all tenants, with written acknowledgement from the tenants. Ensure that the seller is ready to cover any damages that tenants may cause, unless you're ready to take on those potential costs yourself.
In terms of timing for providing notice to tenants, the following apply in your situation:
· If the buyer personally requires the unit, 60 days notice must be given and the termination date cannot be before the end of the lease.
· If you are planning to renovate and eventually re-rent the unit, 120 days notice must be given, and again termination can't be before the lease ends. Additionally, the tenant can exercise the right of first refusal to occupy the premises after renovations – but the tenant must let you know if they intend to do this BEFORE they move out.
Alternatively, you can take possession of the property with the tenants in place. But know that you will be taking on the responsibilities of handling the vacating.
While it sounds like you've thought this part through, I've found from experience that some potential new owners in this situation ultimately decide they don't want to deal with the tenant aspect. It's your property and your right (with appropriate notice!), but getting people who don't want to move, to move… well, it's not everyone's cup of tea.
It's also worth wondering why a current owner is getting rid of an income-producing property. Cashing in? Moving up to a bigger property? I always ask – because in these situations I always want to know if extraordinary tenant issues might be the actual reason!
Taking possession of an occupied property can be a headache. If you don't want to keep renting to the tenants in place (which it sounds like you've decided), I would only recommend buying with tenants in place if you're sure you can handle the vacating process, or it's a property you truly can't live without. Otherwise, move on to a property with a seller willing to guarantee vacancy on closing.
As with all my columns, these are general guidelines. If you're going ahead, make sure you've got a great real estate agent and a great lawyer – and get very familiar with the Residential Tenancies Act (Ontario).
Ricky Chadha is a broker with Royal LePage Estate Realty, and specializes in applying social media and other digital tools to the business of real estate. You can find Ricky on Twitter @your416 or at his website RickyChadha.com.
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The content provided in The Globe and Mail's Ask a Real Estate Expert is for information purposes only and is neither intended to be relied upon nor to be a substitute for professional real estate advice.
Editor's Note. The original online version of this column did not make it clear that the author was discussing rental law only in the province of Ontario. This version has been clarified.