Buying Tenanted Properties - Ask the Right Questions

I want to talk today about an issue that I believe many people are not fully educated in when buying property in British Columbia: Buying tenanted properties.

When a buyer is viewing a property with the intention of purchasing it, that buyer and their REALTOR should know exactly what the property is currently being used for. Is it owner occupied? Is it empty/vacant? Or, is the property occupied by a renter? These are questions that have to be asked!

All rental agreements in BC are governed by the Residential Tenancy Act (RTA). If a Landlord and a tenant have a contract, and a term on that contract is in conflict with the RTA, that term is null and void. If someone tells you that a rental agreement in BC doesn’t have to follow the RTA, run!  They are wrong.

The process of buying an owner occupied or vacant property is quite simple. The buyer is entitled to move in and have full use of the property on the possession date that is stipulated in the Purchase of Sale. The possession date is usually one day after the completion date, which is the day money trades hands between the buyer and the seller.

When a property being bought is occupied by the Seller’s tenant, the process isn’t as simple.

It is a common mistake for Buyers to believe that once they purchase a property, they are fully entitled to move in right away and live in it (kicking the tenant out). This is not the realty, as the RTA gives tenants many rights.

It is important for the Buyer and their agent to find out from the Seller what type of lease the tenant has on the property. Is the lease a fixed or periodic term? A fixed term lease is one that has a set length of time (such as a 1 year lease). A periodic term lease is one that doesn’t have a set length, and is just on a month to month basis.

I would also recommend not solely relying on the Title of the Property to look for any existing leases, as a binding lease doesn’t have to be registered on title if it is less than 3 years. Therefore, if you were buying a house and checked the Title and found no existing leases, and then proceeded to complete on the property, only to find out that there is a fixed term lease with 12 months left, you may have just bought a house you can’t occupy for a year.

To get around this, I would check the title of the property and get a copy of the most current rental agreement between the Landlord and the Tenant from the Seller or the Seller’s agent.  If I was representing the Buyer, I would also build into the contract that my client relied on the terms given in the lease.  This could protect you down the line if you decided to exercise your rights and serve notice on the tenant.

Back to point about difference between Periodic and Fixed term leases. If you are a buyer, wishing to purchase a property with an existing tenant, it is VERY important to classify the lease into periodic or fixed because it directly impacts when you can have the tenant leave and take vacant possession after completing.

If the lease is fixed term, under Section 49 of the RTA, the Buyer of the property cannot give notice and take possession until the rental term has expired. This can be several months, or years after taking possession depending on how long is left on the fixed term. So it’s very important to figure out the state of the lease and how many months remain on it. Of course, the tenant may agree to leave once you move in, but I would not rely on this, as many tenants are educated and will fully use their rights. It is alarming how many people don’t realize that you can’t serve notice on a fixed term lease and take possession, even if you are the new owner of the property and had nothing to do with the original lease.

Finally, if the lease is periodic, the Buyer must give the tenant of the property at least 2 months notice and compensate the tenant with 1 months rent (if you are reading this as a tenant and ever get served notice because your place is being purchased, or demolished, make sure you seek your compensation!).

The only way that you, as the Buyer of a property with an existing tenant, could potentially serve notice before the above times, would be if the tenant violated a material term of the Residential Tenancy Act (such as not paying rent or using the property for illegal purposes).

So, concluding, I think it is very important, when someone is going through the buying process, to find out if the unit is owner occupied or tenanted. And, if it is tenanted, make sure you know all the details of the current lease between the Seller and the Tenant. This is not a lot of work, but can save you considerable frustration and time down the line!

 

Please email me directly at mike.mcwhirter@century21.ca if you have any questions about the post and I’ll be happy to help you out!

 

Here is the Residential Tenancy Act:

http://www.bclaws.ca/EPLibraries/bclaws_new/document/ID/freeside/00_02078_01

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