You have been looking for the ideal property to purchase for months and finally find it, but there is a catch, there is a tenant who is currently renting the property. What happens to this tenant when the landlord decides to sell the home?

Simply put, because the lease agreement is legally binding and was in place before, it still stands – regardless if the owner of the home decides to sell. The lease agreement goes with the home. Essentially this means that purchasing the home automatically makes whoever buys it a landlord, whether they planned to be or not. It also means that if you are the tenant, you can let out a sigh of relief as you will only need to leave once your lease agreement expires.

What to expect when buying a home with a tenant
Anyone who purchases the property will only be able to take occupancy of the home once the lease agreement has expired and the tenant moves out. For this reason, it is best to go over the details of the lease agreement and see how long the tenant can stay in occupation before deciding whether it is worth your while to purchase the home.

It is possible that the tenant refuses to move out, even once the lease agreement has run its course. Apart from having to deal with the delay, the new owner may also have to take legal action to have the tenant removed, which will cost money. If possible, before purchasing the property it is advisable to speak to the tenant and see what their intentions are, as this could save both time and money in the long run. A communicative, obliging tenant will make the process far smoother and pleasant.

The legal responsibilities when a landlord sells
Respective obligations are imposed on both the lessor and lessee in a lease agreement, so it is important to understand the implications of buying the home with an existing tenant from the outset. For example, if there was a security deposit paid at the initiation of the tenancy, this will need to be refunded to the tenant at the end of the lease. The new owner of the home must ensure that they get this money from the seller. Otherwise, they will find themselves out of pocket. Another aspect to check is whether the landlord is required to pay back any money that the tenant has paid for improvements to the property during the tenancy – this is money that should also be recovered from the seller during the sales process.

Final Advice
If the property is being bought as an investment or as part of a rental portfolio, the fact that the home is occupied might be seen as a drawcard. However, if the property has been purchased as a primary residence and the new owner intends to live there, it could be a problem. If you’re uncertain of the implications of such a purchase or are a tenant who is feeling uneasy about the sale of your rented home, feel free to get in touch with a real estate practitioner from your nearest RE/MAX Office.