Encourage compromise when selling home occupied by tenant
Thursday, July 02, 2020 @ 2:15 PM | By Mark Weisleder
The fact that there are so many complaints from both landlords and tenants says to me that the Act in general works, and the Ontario government does step in to try and improve the situation when landlords or tenants are being seen to take advantage.
Further complications are now present due to COVID-19, especially when a buyer needs vacant possession on closing in order to move in. Many real estate agreements signed in March 2020 provided that the seller would serve the N12 60-day notice to the tenant effective May 31, 2020, on behalf of buyers who intended to move in on closing, scheduled in June 2020. Then in June 2020 the seller finds out that the tenant cannot move due to COVID-19 and refuses to leave. Even if the seller could arrange a hearing before the Landlord and Tenant Board and wins, the province of Ontario is not enforcing any eviction during the pandemic.
In addition, many tenants are refusing any showings during the pandemic, even if the required 24 hours’ notice is given in advance, claiming concerns about safety.
In either situation, whether it is for a sale or a refusal for a showing, due to the fact that the Landlord and Tenant Board is reopening slowly, conducting hearings by telephone, there is a very large backlog of cases and it will likely take months to even obtain a hearing.
What to do?
What if you are consulted before the property is put up for sale?
If I am consulted before the home is put up for sale, I will tell the owner landlord to first send me a copy of the lease to ensure the tenant does not have a right of renewal in the lease. If they have a right of renewal then they can legally renew and cannot be evicted by any buyer until the end of the renewal term. I will then explain to the landlord that unless they find a buyer willing to accept the tenant, the seller is better off approaching the tenant in advance to determine if an arrangement can be made to permit showings that are as safe as possible, complying with all health and safety guidelines, and to more importantly see if a mutually acceptable agreement can be made for the tenant to move out in advance of even putting the home on the market.
This may require an incentive to do so and while there is no guidance as to how high an incentive will have to be paid, the costs a seller will incur if the tenant just refuses to leave, causing the real estate agreement to be either extended or cancelled, will in my experience be much higher. I have heard of several instances where tenants understand the leverage that they have and are now requesting 20 times the monthly rent as an incentive to leave.
What if you are faced with a closing and a tenant who is refusing to leave?
In this case, you have three possibilities, none of which is a good option for the seller.
a. You can extend the agreement, until the tenant has left. This may be complicated by the buyer having their mortgage commitment expire or not having a place to stay.
b. You can pay the tenant an incentive to just leave on time, but there is no guarantee the tenant will accept any amount; or
c. You can offer the buyer a discount to just accept the tenant on closing and continue the eviction themselves. The difficulties here are that the buyer lender may not permit a tenant to be assumed under the mortgage commitment and if the tenant is still in the property nine months after closing, the buyer could forfeit the Ontario Land Transfer Tax first-time buyer rebate, which requires a first-time buyer to occupy the home as their primary residence within nine months of closing.
What is the main lesson to remember?
As with most landlord and tenant disputes, it is better for everyone to just work together to find a reasonable compromise that is fair to everyone, so that you can get the issue closed. If your tenant cannot pay the rent, work out a payment plan that is reasonable during the pandemic. Real estate lawyers also need to work together to try and find a reasonable solution that will benefit everyone.
Mark Weisleder is a senior partner with the law firm Real Estate Lawyers.ca LLP and is also an author, newspaper columnist and keynote speaker. He has practised real estate law for over 30 years and has written best-selling industry books for homebuyers and sellers, residential landlords and real estate salespeople. Reach him at email@example.com.
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