By Sean Schaefer
You have been looking for a home in your desired area and price range, and you think you have found it. But there is a catch – a tenant lives there.
As a prospective buyer, you need to know your legal responsibilities to the tenant if you buy the home.
Breaking the tenant’s lease
If you want the tenant to leave before you take possession, the steps that must be followed depend on the lease agreement they now enjoy.
With a fixed-term lease – usually for a year – the lease remains valid and a new owner of the home must honour its terms until it expires. That means you could have a tenant for up to a year, whether you want them or not.
If you prefer not to renew the lease, the tenant must be given written notice of your intentions 90 days before it expires.
A three-month notice period is also required with tenants on a month-to-month lease. This notice period cannot be shortened, even by a few days, unless the tenant agrees. For example, if the tenancy goes from the first day of the month to the last day of the month, a notice of termination on Aug. 2 is a day late and would end the tenancy on Nov. 30 rather than Oct. 31.
As the buyer, you must ask the present landlord, in writing, to provide the tenant with a written notice to vacate. You then will have to wait for the three-month notice period to end before you get full possession of the home.
Legally breaking a lease may allow the homeowner to sell the property quicker. However, they must work with a real estate lawyer to ensure there are terms in the purchase agreement detailing the terms under which the tenant has agreed to vacate.
In most cases, the existing landlord and tenant can come to a mutual agreement to end the lease early. Referred to as a “cash-for-keys” agreement, tenants can be financially encouraged to move out of the home, enticed by such things as a free month’s rent and/or the coverage of moving expenses.
By following the rules, homeowners and homebuyers in Alberta can navigate the process of buying and selling a property efficiently and respectfully.
Showing a home with a rental unit
Landlords in Alberta who want to show their property to prospective buyers must give tenants written notice at least 24 hours. The notice must state the date, time and duration of the showing. They must occur during the day or early evening, to respect the tenant’s right to peaceful enjoyment of their unit.
The landlord does not have to be there when the tenant’s unit is shown since the realtor is legally considered an agent of the landlord. They therefore have the right to enter the property as long as they follow the rules contained in the Residential Tenancies Act, including advance notice.
Tenants can decide if they want to be home during showings. They can also tell the landlord, in advance, if they do not want showings on certain days for religious or personal reasons, for example.
Tenants are expected to keep the property reasonably clean at all times, but especially during showings. The landlord can even offer to pay for a cleaner to come into the rental unit if the tenant agrees.
Keep in mind that a good relationship with the tenant may be instrumental in selling the home. Advance notice and communication can go a long way toward smooth showings.
Keeping the tenant
There are advantages to keeping the tenant when you buy a home. The biggest one is that they provide a monthly source of income to offset your mortgage costs.
If you agree to buy the home and are willing to keep the tenant, you must work with a lawyer to receive an assignment of the lease and a tenant estoppel certificate. This document is a certified statement by a tenant that verifies the terms and conditions, and current status, of their lease.
Once an assignment of the lease is given by the seller and the estoppel certificate is signed, you become a landlord, with all the legal requirements that come with that position. In addition, the tenant may have paid a damage deposit to the previous landlord and the last’s month rent, and those funds should also be transferred.
If a tenant has been residing in a home for many years, the rent they have been paying may have fallen below the market value. That is especially true if they are a friend or family member of the owner.
However, you cannot immediately raise the rent. Alberta’s Residential Tenancies Act states that if tenants have a fixed-term or month-to-month lease, the new owner must honour the terms of the current tenancy.
According to information from the provincial government, rent cannot be increased unless 365 days have passed since the “commencement of the tenancy or the last increase in rent, whichever is later.” This applies to both periodic and fixed-term tenancies.
If you have given the tenant a notice about a rent increase and they do not respond with a notice that they want to terminate the lease, they are deemed to have accepted the rent increase.
The notice of rent increase must be in writing and include:
- the effective date of the increase;
- the landlord’s signature; and
- the date the landlord signed the notice.
Rent may also be increased if it is justified by investing in improvements or renovations to the property.
Contact us for assistance
Anyone buying or selling a home should consult with a real estate lawyer. That is especially true if there is a tenant involved. The team at Demas Schaefer serves all of northern Alberta. We have represented clients in Edmonton, Leduc, Wetaskiwin, Sherwood Park, Spruce Grove, St. Albert, Red Deer, Provost, Grande Prairie, Peace River, Edson, Hinton and Cold Lake. Contact us for a free consultation.