Buying real estate in Ontario is rarely a simple transaction, but when that property comes with tenants already in place, things can get particularly complicated. For many investors, a tenanted property represents immediate rental income and a ready-made investment. But for buyers looking to move into the property themselves, or those unaware of the legal landscape, purchasing a home with existing tenants can lead to unexpected hurdles.
In Ontario, tenants enjoy strong protections under the law, particularly through the Residential Tenancies Act (RTA). This legislation not only governs how rental agreements are handled, but also sets strict limits on when and how a tenant can be asked to leave. It’s a common misconception that buying a property automatically gives the new owner the right to terminate the tenancy. In reality, unless specific legal steps are followed, the tenant has every right to stay, regardless of the change in ownership.
This is why understanding tenancy clauses in your Agreement of Purchase and Sale (APS) is essential. The phrasing used in this document can make all the difference between receiving an empty property on closing day or being legally bound to a lease you didn’t initiate.
So, what should buyers be paying attention to? Let’s explore.
Why Tenancy Clauses Can Make or Break Your Deal
When you purchase a tenanted property in Ontario, you are not just buying a home, you are also stepping into the shoes of the landlord. This means you assume responsibility for the existing lease, including all the terms agreed upon between the current owner and the tenant. Unless your APS includes language that explicitly requires the property to be delivered with vacant possession, the assumption is that the tenancy continues unchanged.
Two key phrases typically appear in real estate transactions involving tenanted properties:
If your APS includes “subject to existing tenancy,” you are agreeing to buy the property with the tenant in place. This means you inherit not only the rent but also the duration of the lease, any included utilities, parking arrangements, and more. In some cases, this can work in your favor, particularly if the tenant is reliable and the rental rate is profitable. For investors, this is often the goal.
However, if you’re planning to move into the property yourself, you’ll need a different clause. This clause has to be one that states the seller must provide “vacant possession on closing.” This shifts the responsibility to the seller to legally end the tenancy before closing day. But even this clause doesn’t guarantee a smooth transition unless the proper legal procedures are followed.
Tenant Rights and the RTA: What the Law Says
One of the most critical aspects to understand is that tenants cannot be evicted simply because a property is being sold. The Residential Tenancies Act prioritizes stability for tenants, and the sale of a property does not override their right to remain in their home.
If a buyer wants the property vacant for personal use, the proper process must be followed under the RTA. The most commonly used legal tool for this purpose is the N12 Notice to Terminate Tenancy. This notice can be served when the buyer or their immediate family intends to move into the property. But even then, strict rules apply.
The N12 must be delivered at least 60 days before the end of a rental period and must be supported by a sworn affidavit declaring the buyer’s intention to personally occupy the property. The buyer must also be prepared to live in the home for at least one year. Tenants are entitled to compensation equivalent to one month’s rent or alternative housing if agreed upon. Moreover, tenants have the right to dispute the notice at the Landlord and Tenant Board (LTB), which can delay or even block the termination if not handled correctly.
The Difference Between Owning and Living In the Property
From a legal standpoint, buying a property that’s “subject to tenancy” is straightforward in terms of rights and obligations. The buyer simply continues the existing landlord-tenant relationship. Rent can’t be increased beyond the provincially mandated guideline unless the unit qualifies for an exemption or the tenant voluntarily signs a new lease.
This setup is ideal for buyers interested in holding income properties long term. However, for personal buyers—those who want to live in the property themselves—the risks are higher. Even when everyone involved verbally agrees on the plan, nothing is enforceable unless documented correctly in the APS and carried out in line with the law.
A mistake as simple as failing to insert the right clause or serving notice too late can result in closing on a property that you cannot legally occupy.
The Role of a Real Estate Lawyer
It cannot be overstated how crucial a knowledgeable real estate lawyer is in these situations. An experienced lawyer will ensure your APS includes the appropriate clauses, verify the status of the existing lease, and guide you through the notice process if vacant possession is required.
They can also help request estoppel certificates, which confirm lease terms and tenant obligations, especially important in multi-unit or commercial transactions. Without legal advice, buyers run the risk of sending notices that don’t meet the legal requirements, which can open the door to tenant disputes, delays, and financial penalties.
Illegal evictions, whether intentional or not, are taken very seriously by the Landlord and Tenant Board. A buyer who proceeds without proper legal guidance can find themselves facing fines, orders to reinstate the tenancy, or worse.
Common Pitfalls and How to Avoid Them
Many buyers make the mistake of assuming that a month-to-month lease can be ended on short notice or that fixed-term leases become null upon sale. Neither is true. Month-to-month tenants are still protected under the RTA and require proper notice. Fixed-term leases must be respected until their natural end unless the tenant agrees to terminate early through an N11 agreement.
Even more complicated are situations involving student rentals, illegal basement units, or rooming houses, each of which may fall under different rules or municipal regulations. These grey areas are precisely where legal advice becomes indispensable.
Verbal promises from sellers or tenants are not enforceable. If you’re relying on someone’s word that the tenant will be gone before closing, you’re taking a significant legal and financial risk. Everything must be formalized, documented, and executed according to the law.
In Summary: Know Before You Close
Purchasing a tenanted property in Ontario can be a smart financial move or a personal headache, depending on how the transaction is handled. Whether you’re a seasoned investor or a first-time homebuyer, understanding your rights and responsibilities under the Residential Tenancies Act is not optional. It’s essential.
If you’re buying with the intention to move in, make sure your Agreement of Purchase and Sale explicitly states the need for vacant possession. And always work with a lawyer who is familiar with Ontario tenancy law. This is not an area where guesswork is your friend.
At Philer.ai, we work with buyers every day to navigate these complex issues. From reviewing your contract to helping you issue the right notices, we make sure your purchase goes smoothly and stays compliant with the law.
If you’re in the process of buying a tenanted property or just starting your search, let us help you get it right the first time. Book a consultation with Philer.ai and protect your investment with peace of mind.
