A buyer of real estate obtains “indefeasible title” (ie. ownership that is not vulnerable to being defeated, revoked or lost) subject to certain exceptions listed under section 23 of the Land Title Act of British Columbia. One of the exceptions is a lease or agreement for lease for a term not exceeding three (3) years if there is actual occupation under the lease or agreement. Accordingly, whether buying, selling or listing a home occupied by a tenant, it is important to turn your mind to potential tenancy issues. In this article we will discuss some considerations with respect to tenancies in the context of residential real estate transactions.

In the standard form Contract of Purchase and Sale used for residential real estate transactions in British Columbia, section 5 states whether or not the buyer will have vacant possession of the property or whether the buyer will assume an existing tenancy. This section of the Contract of Purchase and Sale should be consistent with the buyer’s intention prior to submitting an offer to the seller.

If the buyer intends to keep an existing tenant, we recommend including a condition in the Contract of Purchase and Sale which permits the buyer to walk away from the deal if they are not satisfied with the documentation and terms of the tenancy. Matters which are likely of interest to the buyer include, without limitation, whether there is a written/signed tenancy agreement, the term of the tenancy (fixed term, monthly, etc.), the amount of monthly rent payable, whether utilities are included in rent, the timing and amount of the last rent increase, the payment terms for rent, the amount of the security deposit held, and whether a Condition Inspection Report was completed and delivered to the tenant.

If the buyer intends to obtain vacant possession of the property, the existing tenancy must be terminated in accordance with the terms of the Residential Tenancy Act of British Columbia. Please note that in a recent case decided by the Supreme Court of British Columbia (Aulakh v Nahal, 2017 BCSC 1000) the court decided that tearing up a tenancy agreement and removing the tenant’s possessions from the property does not constitute a legal termination of a tenancy.

The Residential Tenancy Act of British Columbia permits the termination of an existing tenancy if the buyer (or a close family member of the buyer) intends in good faith to occupy the property. The seller is required to provide notice to terminate an existing tenancy if the seller enters into an agreement in good faith to sell the property, all of the conditions on which the sale depends have been satisfied and the buyer requests in writing that the seller give notice to the tenant to end the existing tenancy. Please note that the buyer’s request must be in writing. Further, section 49 of the Residential Tenancy Act requires that the tenant be given two months’ notice (starting from the next full month or other period on which the tenancy is based) and that one of the months be rent free.

When selecting a completion and/or possession date, we recommend that the parties turn their minds to the above-mentioned two-month notice period as well as the following rules with respect to when notices are deemed to be delivered to a tenant:

For more information about serving notices during tenancy, please visit: https://www2.gov.bc.ca/gov/content/housing-tenancy/residential-tenancies/during-a-tenancy/serving-notices-during-tenancy

It is prudent to address and resolve any potential tenancy issues as early as possible in a real estate transaction to minimize the risk of surprises and delays. If you are a realtor, it is also important to take reasonable steps to ensure that the existing tenancy and client expectations are properly managed to avoid potential negligence claims. In June 2017, the court in Aulakh v Nahal held that the realtor (who acted for the seller and the buyer) failed to exercise the standard of care that would be expected of a reasonable and prudent agent in the circumstances. Interestingly, the court did not require any expert evidence to determine the parameters of the standard of care required.  In this case the realtor clearly failed to satisfy the required standard of care because she failed to draft the Contract of Purchase and Sale to reflect the intentions of the parties and failed to take any steps to confirm her understanding or to ensure that the issue was in fact dealt with prior to closing.

If you have any questions regarding the above or if you have any other questions with respect to purchasing, selling or listing a tenanted property, please do not hesitate to reach out to one of our lawyers practicing in the area of real estate law.

Author: Danielle (Dani) Brito

This information is general in nature only. You should consult a lawyer before acting on any of this information. This information should not be considered as legal advice. To learn more about your legal needs, please contact our office at (250)448-2637 or any of our lawyers practicing in the area of real estate law at the following: