Assuming a Tenant as Part of Your Purchase

April 30, 2020

By Lorne Shuman


For many potential homeowners, renting out a part of their property can assist to cover some of the costs of buying and maintaining the property. However, if you are buying a property and assuming a tenant as part of the transaction, there are a number of important issues that need to be considered. This column will examine those issues.


Most Agreements of Purchase and Sale state that the seller will provide vacant possession on closing. If your transaction involves assuming a tenant, your realtor should include the appropriate wording in the Agreement to reflect the fact that the tenant is being assumed. The clause for the tenant assumption should state the monthly rental amount, the amount of any prepaid rent and whether or not the rent includes utilities or any other amenities like parking. If a lease agreement exists, it should be attached is a schedule to the Agreement. Your lawyer will need this information to prepare the necessary paperwork for the assignment of the tenancy as well as to prepare the adjustments for the rent.


If you are purchasing a property and assuming a tenant, it is strongly recommended that you advise your lender or your mortgage broker of the tenancy. It is important to disclose this prior to waiving any financing condition in the Agreement. This is because some lenders require that the property be occupied by the owner as a condition of the mortgage loan. Similarly, you should confirm with your insurance broker that you will be able to obtain adequate property insurance.


If the tenant lives in a basement apartment, it is also recommended that you make inquiries with the local municipality to confirm that the basement apartment is legal and that the property is zoned as a multi-unit dwelling. Each municipality has its own rules and regulations relating to secondary units. These are quite complex and it may be difficult and expensive to retrofit or legalize a secondary unit following closing. If the tenant is residing in the basement apartment on the property, it would be advisable to inquire with the seller to confirm whether or not a building permit was obtained for the renovation of the basement and that the basement complies with the applicable municipal bylaws and regulations including building and fire code requirements. Your realtor may suggest additional protection by including a clause in the Agreement whereby the seller represents and warrants that the zoning complies with the municipal requirements.


If you are assuming a tenant, you should familiarize yourself with the Residential Tenancies Act which governs the relationship between you as the landlord and your tenant. There are instances where you as the landlord can terminate the tenancy, however, you are subject to the Act and must act in compliance with the law. Assuming a tenant as part of your purchase can assist from a financial standpoint. However, before signing on the dotted line, you need to be aware of the issues and risks involved.


Article Courtesy of:
Isenberg & Shuman Professional Corporation
5075 Yonge Street, Suite 804
Toronto, ON M2N 6C6
Tel: 416-225-5136 x216

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