Is it Ok to Buy a House With Tenants?

Is Purchasing a Home With Existing Tenants a Good Idea?

You searched for months to find the perfect property. It has the right number of bedrooms, a great backyard, and is in your ideal neighbourhood. There is just one catch: it already has tenants living in it. This situation presents a common question for many potential buyers. The answer to is it ok to buy a house with tenants depends entirely on your goals. Are you an investor looking for immediate cash flow? Or are you a homebuyer who wants to live in the property? Each path has its own set of rules, benefits, and potential challenges.

Buying a tenanted property is not a simple transaction. You do not just inherit the building; you inherit the people and the legal agreements that come with them. In Ontario, the Residential Tenancies Act (RTA) governs the relationship between landlords and tenants. These laws provide strong protections for tenants, and as a new owner, you must follow them perfectly. Understanding your rights and responsibilities from the very beginning is the key to a successful purchase. This knowledge will help you decide if this opportunity is a smart investment or a future headache.

Assuming the Role of a Landlord

When you purchase a property with tenants, you instantly become a landlord on closing day. You step into the shoes of the previous owner and inherit the existing lease agreement. This means you must honour all terms of that agreement exactly as they are written. You cannot immediately raise the rent, change the rules about pets, or alter utility arrangements. The lease continues until its term ends, at which point it typically converts to a month-to-month tenancy under the same rules. It is critical to obtain a copy of the current lease during the due diligence period of your purchase.

Your real estate agent should ensure your offer includes a request for all tenant-related documents. This includes the original rental application, the signed lease, and any written correspondence between the previous landlord and the tenant. You also need confirmation of the last month’s rent deposit, which the seller must transfer to you at closing. This deposit continues to be held in trust for the tenant. Verifying that the tenant is in good standing is also important. Ask the seller to provide proof of consistent, on-time rent payments to avoid inheriting a difficult financial situation.

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Related Article: What Rights Do Tenants Have When the House Is Being Sold in Ontario?
Related Article: Can Someone Live With You Without Being On the Lease Ontario?

Acquiring the Property for Your Own Use

Many buyers want to purchase a tenanted house to live in it themselves. This is possible, but it requires following a specific legal process. You, as the buyer, cannot evict the tenant directly. Instead, your Agreement of Purchase and Sale must require the seller to provide the tenant with proper legal notice on your behalf. The seller serves the tenant an N12 form, which is a Notice to End the Tenancy for Landlord’s Own Use. This form tells the tenant that the new owner wishes to move into the unit.

The N12 notice has strict rules. It requires at least 60 days’ notice, and the termination date must be the last day of a rental period, such as the end of the month. The landlord must also pay the tenant one month’s rent as compensation. It is vital that this notice is given in good faith. This means you must genuinely intend to live in the home for at least one year. If you evict a tenant under false pretences, the Landlord and Tenant Board (LTB) can issue significant fines and order you to pay the tenant substantial compensation. The tenant also has the right to challenge the N12 at the LTB, which could delay your move-in date.

The Legal Landscape

The Residential Tenancies Act (RTA) is the primary law governing rental housing in Ontario. It outlines the rights and responsibilities of both landlords and tenants. The RTA’s main purpose is to protect tenants from unlawful evictions and unfair practices. As a new owner, you cannot simply ask the tenants to leave because you bought the property. The existing tenancy agreement legally remains in effect. Any attempt to remove a tenant outside of the LTB’s official processes is an illegal eviction and carries severe penalties.

You cannot change the locks, remove a tenant’s belongings, or shut off vital services like heat or water. While the N12 process is the formal route for own-use evictions, you can also negotiate a mutual end to the tenancy. You and the tenant can voluntarily sign an N11 form, an Agreement to End the Tenancy. Often, landlords offer tenants a financial incentive, sometimes called “cash for keys,” to encourage them to sign the N11 and move out willingly. This can be a faster and less confrontational alternative to the N12 process, but the tenant is under no obligation to agree.

Key Steps for a Smart Purchase

Proper due diligence is your best tool when buying a tenanted property. Your decisions should be based on facts and clear documentation. A careful review of all paperwork and a clear understanding of the property’s condition will protect you from future surprises. Here are some essential actions to take before you commit:

• Review the Lease Agreement

  Carefully read the entire lease. Check the monthly rent amount, the lease term (is it fixed or month-to-month?), and what services, like utilities or parking, are included. Pay attention to any special clauses or addendums.

• Get an Estoppel Certificate

  Ask the seller to provide a tenant estoppel certificate. This is a signed document where the tenant confirms the key terms of their lease. It prevents them from later claiming the rent was lower or that a verbal agreement existed.

• Verify Rent Payments

  Do not just take the seller’s word that the tenant pays on time. Ask for concrete proof, such as bank statements or official rent receipts, that show a consistent payment history.

• Include Protective Clauses in Your Offer

  Work with your real estate agent to add conditions to your offer. If you plan to move in, make the sale conditional on the seller providing vacant possession on closing. This places the legal responsibility of the eviction process on the seller.

Conclusion

Buying a house with tenants can be a brilliant move or a complicated ordeal. The outcome truly depends on your preparedness and your goals. For an investor, it can mean securing an income-producing asset from day one, skipping the hassle of finding renters. For a future homeowner, it could be the path to owning a home in a desired area, as long as you can follow the precise legal steps for taking possession. The key is to remove all emotion and approach the purchase with a clear, analytical mind. Do your homework. Understand the numbers, the people, and the law.

The rules set out by the Residential Tenancies Act are not optional suggestions; they are firm legal requirements. Ignoring them can lead to costly hearings before the Landlord and Tenant Board and significant financial penalties. Always work with a real estate professional and a lawyer who have experience with tenanted properties. Their guidance can help you structure a purchase agreement that protects your interests, whether you intend to keep the tenants or move in yourself. With the right knowledge and a solid plan, you can confidently turn this complex situation into a successful real estate achievement.