Buying a Tenanted Property in BC
Giving Notice, Intention & How to Purchase a Tenanted Property
Written By: Mariko Baerg, REALTOR of Bridgewell Real Estate Group
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Tenanted properties come up for sale on the market often, so it’s important to understand how to structure your offer based on tenancy law.
Buying a tenanted property is very different than buying an owner occupied or vacant properties, as you need to be aware of the tenant’s rights and how that may affect your desired move in date!
We discuss month to month tenancy, fixed term tenancies, buying as an investor, buying to renovate or repair, and buying to occupy the unit in good faith and how each situation varies for you as a buyer.
This blog also goes over the different timelines for giving notice to a tenant, and how the end or continuation of a tenancy will work depending on your intention for the property.
Read on for everything you need to know about buying a tenanted property in BC and how it affects your completion and possession date.
When a landlord plans to sell a rental property, the tenancy continues. The landlord cannot end a tenancy because they want to sell a rental unit. Which means that as a buyer, you’re going to have to understand how to work with that tenant when it comes to purchasing the unit.
Before we go in to how each different situation plays out, it’s good to start with the basic terminology when it comes to tenancies – mainly, how fixed term vs month to month tenancies work.
Fixed term tenancies
Fixed term tenancies mean that there is a tenant that is guaranteed to be in the unit for a fixed period of time, typically one year. An example of a fixed term tenancy timeline would be January 1st to December 31st, in which the tenant pays their monthly rent on the 1st of each month. (12 payments) This means that both the landlord and the tenant are locked in to that tenancy for the duration of the term, unless they sign a mutual agreement to end tenancy early.
When selling a tenanted property that is under a fixed term, it is important to know that you cannot just kick the tenant out to re-rent or sell the home as vacant when the fixed term comes up. Tenancy law states that once the fixed term comes up that the tenancy automatically rolls over in to a month-to-month tenancy, unless the landlord’s reason for vacating the unit (i.e. intends to occupy the unit in good faith) is in line with tenancy law rules.
Month to month tenancies
The main difference between a fixed term tenancy and a month-to-month tenancy is the ability to break the tenancy before the term. In a month-to-month tenancy, there is no term as the agreement is simply “month to month.” Therefore, both the landlord and the tenant have the ability to break the tenancy as long as they give proper notice.
For a tenant, that notice is a minimum of 1 month from the pay period. (Ie. If you pay rent on the 1st of every month and give proper notice to the landlord on November 15th, then that 1 month notice would be effective as of December 1st and you would move out as of December 31st at 1PM).
For the landlord, the length of notice they are required to give depends on the intention of breaking the month-to-month tenancy, which I will discuss in more detail as we go! Generally, if you are breaking a tenancy to occupy the unit in good faith then you will have to give a minimum of 2 months notice from the pay period.
What questions should I ask when buying a tenanted property?
Because there is such a difference between how to deal with tenants depending on the situation, you’ll want to get an excellent understanding of the contractual relationship that the seller/landlord and the tenant have.
You’ll want to start by asking the seller and/or seller’s agent the following questions:
- Is the tenant on a fixed term lease or month-to-month lease?
- If fixed term, when does the lease end?
- Do you have a mutual agreement to end the tenancy early?
- If month-to-month, when do they pay each month?
- How much do they pay monthly?
- How much was their security deposit?
- Do they have any pets and if so, how much was the pet deposit?
- How long have they been living in the property?
The above questions will help to give you a greater understanding of what type of agreement the landlord/seller and the tenant have, so that you can make sure that your contract of purchase and sale for the tenanted property that you are interested in is within tenancy law!
When writing an offer on a property, you’ll also want to make sure that you have a term in the contract stating either the details of the tenancy lease and/or that the tenancy agreement is attached or incorporated to the contract. If you cannot get a copy of the tenancy agreement before writing the offer, then you’ll want to include a clause that the seller will provide a copy of the existing agreement for your review.
Let’s move on to the different types of scenarios and the rules associated depending on your intention for the property.
“I plan on occupying the unit, what kind of notice do I need to give to the tenant?”
If you are in the situation where you’re looking to purchase a property for you or an immediate family member to live in, you’ll have to start with whether the tenant is on a fixed tenancy or month-to-month tenancy.
If you or an immediate family member is planning on occupying the property in good faith and it’s a month-to-month lease…
Keep in mind that the way you view a close or immediate family member may be different than tenancy law views it! The only family members that qualify as an immediate/close family member are a spouse, parent, or child of the landlord. Please note that this DOES NOT include siblings.
With that being said, there are if a buyer in good faith intends to occupy the property then they must have the landlord submit a TWO MONTH Notice to End Tenancy For Landlord’s Use of Property.
When giving two month notice to end tenancy keep in mind the following:
- The two months is effective as per the pay period, not when you give notice. Therefore, if they pay rent on the 1st of the month and you give notice on the 20th, then the 2 months will not start until their next pay period.
- Serving notice to the tenant cannot be a condition/subject clause of the sale. Serving notice can only be done once the deal is “firm” and the subjects removed/deposit handed in. Therefore, if the tenants pay rent on the 1st of the month and subject removal falls on the November 2nd, then you can only serve notice as of the 2nd in which the 2 months won’t start until December 1st. This means that you will not be able to occupy the unit until February 1st.
- The buyer must submit a written request to the seller to end tenancy, and then the seller has to give the tenant a Two Month Notice to End Tenancy for Landlord’s Use of Property
Unless a landlord (seller or buyer) serves a proper notice to end tenancy, the tenancy continues under the terms of the original tenancy agreement.
If you want to move in to a tenanted property but it’s a fixed term lease…
When you buy a tenanted property that is on a fixed term lease then you cannot evict the tenant until the lease expires. If the tenancy term is until October 31st but you want to move in July 1st, you cannot evict the tenant even though you plan on occupying the unit in good faith.
The only way to break the lease is if both the tenant and the landlord agree to mutually end the tenancy early. Some landlords are willing to provide compensation to the tenant in order for them to move out early; however, keep in mind that if the tenant says no then that is within their right.
If you or an immediate family member wants to move in to the unit make sure that you remember that you still need to give proper notice to the tenant, or else the fixed term will automatically roll over in to a month-to-month tenancy. You will still have to give the same two months notice requirement nearing the end of the lease. Therefore, if the lease expires on October 31st, then you can give your 2 months notice to occupy the unit in good faith no later than September 1st.
If you’re an investor looking to have the property rented….
Once a property is sold, the buyer becomes the new landlord and the tenancy continues under the same terms. The buyer (new landlord) and the tenants don’t need to sign a new tenancy agreement, but may do so if they both agree.
When you buy a tenanted property, you assume all parts of the existing lease; which means you are still bound to the current tenant, terms, rental rate, and lease.
You cannot just kick the tenant out and re-rent to someone for a higher rate.
Regardless of whether they are on a month-to-month or fixed term lease, if the property is being rented for below-market rent and you want to find someone else who will pay more you can’t legally evict the tenants. The only way you can legally have the tenants move out is if there is a mutual agreement to end tenancy or you (or an immediately family member) moves in and occupies the unit in good faith for at least a year.
You cannot just increase the rent to market rent and force the tenants to pay it.
There are rules as to how much you can increase the rent each year. Remember, you are taking over the existing tenancy automatically which means that you are also bound to the rules regarding increases in rent.
You can only increase the rent once every year, and this is not on a calendar basis but rather on a 12-month lease basis. For 2020, the allowable increase is 2.6% per 12-month period of the lease.
As an investor, the above is why it is so important to know what the terms of the tenancy are and how much the tenants are paying. For this reason, it may actually be better for investors to consider owner occupied or vacant properties, as this will allow them the opportunity to screen tenants and negotiate a new lease without having to take over an existing one.
If you’re planning on renovating the property….
The buyer can serve the tenant a Four Month Notice to End Tenancy after the title of the property has been transferred and all required permits and approvals are in place when the buyer intends to:
- Demolish the rental unit or do major repairs or renovations that require the building or rental unit be empty
- Convert the rental unit to a strata property unit, a non-profit co-operative or society, or a not-for-profit housing co-operative under the Cooperative Association Act
- Convert the rental unit to non-residential use, such as a shop
- Convert the rental unit into a caretaker’s unit
If the current tenants have given notice that they’re leaving…
It may be the case that there is a mutual agreement to end tenancy that has been signed, or that if the tenants are on a month-to-month tenancy that they’ve given their one month notice that they are leaving.
In this scenario you will not need to give notice to the tenants, but before submitting an offer on the property you will want to make sure that you have a copy of the written notice received by the tenants so that you can coordinate your closing date accordingly. To avoid assuming the tenant, you’ll want to make sure that your completion date occurs after the tenant moves out.
In the Contract of Purchase and Sale, you’ll also want to add in a term that you are purchasing with the understanding the that property will be vacant for possession.
Tips on Giving Notice & Buying a Tenanted Property
Don’t forget – they can only give notice once there is a firm deal to purchase the property
You can only give notice once there is a firm deal on the property, meaning all subjects are removed and the deposit is handed in.
If you’re a buyer, it’s important that you keep your subject removal timeframe in mind if you intend to occupy the unit. The notice cannot be a subject to the contract, so if your subject removal date runs just past their pay period – you will have to wait longer. Try and make it so that your subject removal is up before their pay period to minimize the two-month notice time.
Don’t leave giving notice to the last minute
The earlier that you can give the notice, the better off you’ll be as the tenant still has to confirm that they’ve received the notice.
Don’t leave giving notice until the day before their rent is due, try to give at least an extra week if possible.
The tenant must move out by 1 p.m. on the effective date of the notice – the last day of the tenancy. This means the unit must be cleaned and all keys given to the landlord by then, unless the landlord agrees in writing to a later time.
Don’t Lie, there are hefty fees if you’re caught
Landlords should beware that when they end a tenancy, they must:
- Take steps to accomplish the stated purpose for ending the tenancy under section 49 within a reasonable period after the effective date of the notice, or
- Use the rental unit for that stated purpose for at least 6 months beginning within a reasonable period after the effective date of the notice,
If they don’t, they must compensate the tenant 12 months’ rent payable under the tenancy agreement. If a former tenant applies for compensation, a landlord should be prepared to show that the rental unit was used for the reasons given in the notice, or the reason they were not able to use the rental unit for the reasons given in the notice.
If you’re looking to purchase a property and would like guidance on how to get the ball rolling, then give us a call. We’re familiar with tenanted properties and can help make sure that you know how to line up your completion dates properly. Start a conversation by calling 604-765-0376. Prefer text? 604-319-0200 or email [email protected]. We’re here to help.
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