Buying Tenanted Property

Purchasers of real estate may acquire the property with a tenant in occupation or the property may be vacant on completion of the transaction. Following are a few general considerations for a purchaser acquiring property subject to an existing tenancy.

The purchaser should recognize that the tenant is the owner of an interest in the property for the duration of his lease or tenancy. (The terms “lease” and “tenancy” will be used interchangeably throughout this article). Unless the tenancy had been properly terminated by the vendor prior to the completion of the sale of the property, the purchaser’s rights are subject to the rights of the tenant. This means that the purchaser is not entitled to violate the terms of the tenant’s oral or written lease agreement. Additionally, the tenant continues to be entitled to the protections afforded by the Rent Restriction Act, if applicable. The purchaser cannot simply require the tenant to vacate the premises on the ground that a new owner has taken over.

In these circumstances, the purchaser should investigate the terms of the lease so that he can understand the terms under which the tenant occupies the premises and also to evaluate his options for terminating the lease, if he desires to do so. He should pay particular attention to whether the lease is for a fixed term or for successive periods of time (for example, monthly, quarterly or yearly) and he should note the expiry date of each term of the lease. The purchaser should also take note of whether the lease may be terminated early by either of the parties and the conditions that need to be satisfied for such early termination.

In the event that the purchaser wishes to terminate the tenancy, he should serve a proper notice to quit or he may consider whether forfeiture and re-entry is an available option. Forfeiture and re-entry is usually applicable where the lease agreement expressly provides for the landlord to re-enter the premises in the event of breach by the tenant. The lease would usually specify the procedure to be followed for the landlord to re-enter and thus terminate the lease in such circumstances. If the lease is registered on the Certificate of Title for the land and the tenant is in breach of the lease for at least one-month, forfeiture and re-entry without further notice may be an available option, even if there is no expressed provision for forfeiture in the written lease. However, forcible entry is prohibited and the landlord or purchaser will need to very careful in exercising such right of re-entry and thus termination of the lease.

The purchaser should note that forfeiture and re-entry may not be available because the conditions for this method of early termination are not satisfied, or having considered all the circumstances, the purchaser’s attorney advises otherwise, for example, because the circumstances indicate that the tenant may apply to a court for relief from forfeiture. In these circumstances and others, it may be appropriate to serve a notice to quit with respect to a periodic tenancy. A fixed term tenancy may not be terminated by a notice to quit, unless the lease provides otherwise. The purchaser will need to ensure that the notice to quit meets all the applicable legal requirements, otherwise it is null and void.

This article is for general information purposes only and does not constitute legal advice.

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