Selling Tenant Occupied Property - Problems with commonly used contract clauses
- Higher risk than ever before
- COVID emergency legislation - eviction freeze not contemplated by standard form real estate agreements leading to collapsing transactions
- Recent legislation creating obligation to pay 12 months’ rent if landlord does not use the property as set out in a notice to end tenancy
- Increasing reluctance of tenants to leave voluntarily into rental market with significantly escalating rents
- More difficult than before to get a prompt hearing before the RTB - may have to wait 3-5 months
- Tenancies more common due to vacancy tax laws
Most common approach used to deal with a purchaser who wants vacant possession:
- Clause setting out that the purchaser requests the vendor deliver a notice to end tenancy for landlord’s use of property
- Section 5 (the “Possession” clause) will expressly state that the property is to be vacant
- Nothing else stated in the contract
Problems with the common approach:
Parties have not reached agreement about what happens if the tenant fails to leave on the possession date.
- Can the purchaser terminate due to fundamental breach?
- Breach of section 9 (title)? An ongoing tenancy is a “charge” on title.
- Or is the purchaser required to complete and sue for damages due to a minor breach of a non-fundamental term?
- Case authorities currently divided and unclear
Selling Tenant Occupied Property
- Both vendor and purchaser are incentivized to allocate in advance the risk of a tenant not leaving on the possession date - put it in the contract
- Purchaser and vendor have competing interests
- Purchaser will prefer right to terminate:
- Wants certainty that property will be vacant on time
- Likely will not want to deal with a tenancy post-closing
- Vendor will prefer purchaser being required to close
- Not the Vendor’s decision to demand vacant possession that was the purchaser’s choice, and the purchaser’s risk
- Vendor will not want responsibility for something not within its control (the decision of the tenant to leave voluntarily)
Other issues that might have to be resolved:
- If the tenant disputes the notice to end tenancy, then who has conduct of the litigation? The purchaser? The vendor? Does the purchaser have to cooperate and show up at the hearing in support?
- Who pays the one month of free rent? The vendor (after all, it is the landlord)? The Purchaser (the person who required the notice to be issued in the first place?)
Sample vendor-friendly clause for discussion purposes (not legal advice for your circumstances):
The Seller will take reasonable efforts to deliver vacant possession of the property to the Buyer on the possession date if the Purchaser requests the Seller deliver a notice under section 49 of the Residential Tenancy Act to End the tenancy of any tenant of the property. However, if that tenant remains in possession of the property on or after the possession date, the purchaser remains obligated to complete the purchase of the property as set out in this contract
For purchasing a tentative property “Can we include the notice served by the Seller and acknowledged by the tenant that the property would be vacant by end of March in the contract?”