When I started my real estate career, tenanted houses took longer to sell, and usually sold for a little less than comparable empty, or owner-occupied homes. However, post 2020, things have changed for the worse. Tenanted homes have become more stigmatized, and for good reason… it’s become more and more common for tenants to clash with sellers and buyers, and to delay, or completely derail, a home sale.
The laws that govern all residential leases give the tenants a certain bundle of rights, and those rights exist because landlords continuously took advantage of tenants. Even today, it’s not uncommon for us to hear about landlords evicting tenants illegally. It’s those bad landlords who have created the framework for bad tenants to take advantage of good landlords, who truly intend to sell their property to end-users who plan to live there.
This blog is going to discuss tenants rights, as well as risks when buying a tenanted property. We’ve also helped dozens of buyers purchase tenanted properties in the past few years, so we’ll discuss the measures we took to protect our buyer’s best interests in those transactions.
First Rule To Consider: The Tenants Rights Under The Residential Tenancies Act Override The Original Lease And The New Agreement Of Purchase And Sale
If you’re a buyer looking to buy a tenanted property, the first thing you should ask is whether or not the tenant willingly gave notice to leave. Moving is a regular part of life, and many tenants (especially young professionals) move when they start a new job, find a partner, or start their family. In our opinion, buying a tenanted property where the tenant gave their notice to leave already is one of the best case scenarios; other buyers are actively avoiding the property because they don’t want to deal with tenants, so you have less competition, and your risks drops significantly. (This isn’t foolproof though, a tenant could still overstay their final day in the property).
If you’re buying a home where the tenant has not given notice to leave, and you want to move into the home personally, this is where things get tricker.
The only three legal ways to evict a tenant are:
- N11, which is a mutual agreement between the landlord and the tenant to end the tenancy. This requires the tenant to agree to leave on their own free will. If the tenant is forced to sign this form, it becomes null and void.
- N12, this is the most common form served to tenants. It’s the notice that the owner, or the buyer, plan to move into the property on a given date.
- Court Order, under certain circumstances, a landlord can take the tenant to the LTB and pursue an eviction. This is usually for non-payment of rent, consistent late payment, illegal activity, etc.
In a sale when a buyer wants to move into a tenanted property, most of the time, an N12 is issued to the tenant. An N12, is a notice to the tenant that the owner, or in this case the buyer/future owner, wants to move into the unit for personal use. It’s important to distinguish that the N12 is just a notice, the tenant still has the right to request a hearing at the Landlord and Tenant Board (LTB) to fight that notice. While most tenants move without exercising this right, it’s something buyers and sellers should always accommodate into their plans and offer paperwork.
In our market, most homes are sold with a 60-90 day closing, but hearings at the LTB can take 6-9 months. And even once a hearing takes place, the judge will still give the tenants leeway to find a new suitable rental.
This is where most buyers and sellers get caught up. They are now in a scenario where the buyer expects to move in a few days/weeks, and the seller can no longer offer vacant possession because the tenants want to exercise their legal right to a hearing. Experienced agents would have already included a clause in the offer outlining next steps, but if there is no clause outlining next steps, then the seller is in breach of the contract.
What does that mean for the buyer and seller?
Some people assume it means the buyer can just walk away… but that’s wrong. The seller’s brokerage is holding the buyer’s deposit funds, and those can only be released through mutual agreement, or through a court order. In a situation like this, it’s up to the buyer, seller, and their respective lawyers, to negotiate a solution under immense pressure. The perfect solution looks different to everyone; the buyer might want their deposit back, but the seller might prefer to extend closing by 2 months to facilitate the eviction. Neither solution is the default. It’s up to the buyer and seller to come to a solution that everyone agrees to, which is why we like to prepare our offer outlining this specific circumstance.
Our Job: Protecting Our Tenants With Advice, And Legal Clauses
Informed buyers, sellers, and experienced agents take proactive measures long before an offer is even submitted. Without the right contractual clauses, everyone is left relying on expensive, last-minute legal maneuvers under serious time pressure.
Below is a foundational clause we customize for our clients:
“The Buyer(s) agrees that they, or their immediate family, intend to move into the property on closing. In this regard, the Seller(s) agrees, when this Agreement becomes unconditional, to provide the Tenant(s) with the applicable notice using Form N12 under the Residential Tenancies Act on behalf of the Buyer, and to pay the Tenant the required statutory compensation under the Act if required.
The Buyer agrees to provide whatever supporting information may reasonably be required to demonstrate, in good faith, that the Buyer or their immediate family intends to occupy the property for a period of at least one year following closing, and agrees to indemnify the Seller for any damages the Seller may suffer if the Buyer does not do so.
In the event the Tenant disputes the notice, the parties agree to extend the closing date by a period of up to 60 days to allow the eviction process to be completed. If vacant possession still cannot be obtained by the extended closing date, for any reason, the Buyer shall have the right, but not the obligation, to either complete the transaction and accept the Tenant in place, or terminate this Agreement and have their deposit returned in full, without interest or deduction.”
This protects both sides. If the tenant doesn’t leave, closing automatically extends by 60 days. If vacant possession still isn’t delivered after that, the buyer decides: assume the tenant, or walk away with their full deposit.
Strengthening It With a Holdback
In a strong buyer’s market, we can push this further with a holdback, where the seller’s lawyer withholds funds in trust until vacant possession is delivered.
“…If vacant possession of the property has not been delivered to the Buyer by the extended completion date, the Buyer’s lawyer shall hold back the sum of $30,000 (the ‘Holdback’) from the funds otherwise payable to the Seller on closing, to be held in trust pending vacant possession being delivered to the Buyer. Any expenses related to the delay, such as temporary housing, furniture storage, and legal fees, shall be deducted from this amount, with the balance released to the Seller once the tenant has vacated.”
In a strong buyer’s market, this can go even further, releasing the full holdback to the buyer as damages if the tenant still hasn’t been evicted after 4 months.
A note on financing: If you assume the tenant, you’ll need to re-qualify your mortgage for a tenanted purchase, and you may lose access to a high-ratio mortgage (that means you would need to put down at least 20% downpayment). You must also inform your insurance company that the property will be tenanted on closing, because tenanted homes are insured at a slight premium over owner-occupied homes.
What Is “Cash for Keys”?
“Cash for keys” is when a landlord or buyer pays a tenant a lump sum to vacate voluntarily and sign an N11, sidestepping the N12 process and any potential LTB hearing entirely. It can feel unfair to pay a tenant to leave, but it’s often far cheaper than covering months of duplicate housing costs, lawyer fees, and furniture storage while waiting on an LTB hearing.
The N12’s Fine Print: Why “Bad Faith” Matters
An N12 can only be used if the buyer, or their immediate family, genuinely plans to live in the property for at least 12 months. If the home is sold, leased out, or left vacant within that window, the tenant can claim a bad faith eviction.
The penalties for a bad faith eviction are steep:
- A lump-sum payment of 12 months’ rent paid directly to the former tenant
- Reimbursement of the rent differential between their old and new home
- Coverage of moving costs, storage fees, and utility setup fees
- LTB fines up to $35,000
- Provincial prosecution with fines up to $50,000 for individuals and $250,000 for corporations
One more thing worth knowing: corporations, numbered companies, and partnerships cannot issue an N12 for personal use. The purchaser must be an individual human being. So if youre buying the home for yourself to live in, it must be in your name if you’re planning to issue an N12 for personal use.
Example: The Glenorchy Semi
Back in 2021, when almost every freehold home in Oakville was selling in multiple offers for tens of thousands over asking, we had a single mom struggling to find a suitable home. Within her budget, the only options seemed to be two-bedroom towns, which wouldn’t work for her and her two kids.
Then a semi in Glenorchy came up that no one would touch. It was tenanted, the tenant had cameras set up throughout, and showings were nearly impossible to schedule. The tenant also warned us (and every other buyer) that they would not move their kids out of the school district, so they weren’t moving until they found another rental nearby.
Our client took the risk. She negotiated a price more than $100,000 below market value and agreed to assume the tenant if she was still there after closing. Luckily, the tenant found a nearby rental and moved out before closing day arrived.
The lesson here isn’t “always take the risk.” It’s that a tenanted property can be a legitimate opportunity when you go in with a solid contingency plan, and the flexibility to handle it if things don’t go as planned.
Frequently Asked Questions
Is it a bad idea to buy a tenanted property in Ontario?
Not necessarily. It carries well-documented risks around delayed vacant possession, but with the right clauses and legal guidance, those risks can be managed. The real danger is treating a tenanted purchase like any other purchase.
Who pays the one month’s compensation for an N12?
Under the RTA, that cost belongs to the landlord (seller). Sellers sometimes try to negotiate it into the APS, but it remains a standard seller expense.
Can a corporate buyer issue an N12 for personal use?
No. The purchasing entity must be an individual human being, not a corporation, numbered company, or partnership.
Can a corporate seller issue an N12 on behalf of an individual buyer?
It’s genuinely contested. We’ve seen paralegals and lawyers land on opposite sides of this exact question on the same file. When it comes up, the cleanest fix is usually negotiating a price where the buyer agrees to assume the tenant and file the N12 themselves after closing.
Not Sure If Buying A Tenanted Property Is Worth The Risk?
Buying any property, especially a tenanted property, comes with a host of risks. It’s almost impossible to make a purchase 100% secure, but we can get very close to that if we handle the transaction with the care and attention it deserves.
This post is for general information only and isn’t a substitute for advice from a real estate lawyer, who should review any tenanted purchase or sale before you sign.
