We have heard a lot of bluster about the new contract – most of it negative – some of it deserved and some of it not – some of it from lawyers – some of it not. Now that summer is over I thought we would take the opportunity to review some of these changes and provide our position with regards to them.
Since we have already had 2 run-ins with the issue of tenants’ rights I thought that this might be a good place to start. The issues are largely a result of a mindset amongst Realtors that the old system is still in place – it isn’t and you need to be aware of that.
Under the prior contract it was expressly stated that possession was subject to tenants’ rights. Effectively this put the onus on the Buyer to ensure that they were protected in the contract with regards to possession if that is what they wanted. The current contract has removed this provision expressly in the Contract however, and this is important, it remains a statutory obligation as between the Seller and their tenant! Let me explain this briefly.
No matter what the Contract purports to do, the rights of tenants are enshrined in the Residential Tenancies Act. That means that the Contract is still subject to tenants’ rights no matter whether it is made expressly subject to it or not. If it isn’t dealt with during negotiations, the Seller assumes all of the issue.
Effectively what the new contract has done is to shift the onus to the Seller to ensure that vacant possession is available. Arguably, we think that this is the correct position to take. The vast majority of Buyers, and it is the vast majority, do not wish to assume a tenant so why was the obligation to deal with the issue passed to them in the prior contract?
Now, the Seller is warranting vacant possession to the Buyer and must ensure 1 of 2 things:
- That the tenants have vacated; or
- That the Buyer specifically agrees to assume the tenant.
Remember here that the Seller is technically the landlord and should have the expertise, knowledge and wherewithal to deal with tenant issues. Buyers on the other hand, are likely to be the unsophisticated party and that is especially true where they are not intending to be landlords but are expecting to take possession.
Of course, you as Realtors are expected to know this however, mistakes happen and under the old contract the consequences of that error fell to the Buyer. We think that model was flawed.
Under the prior model, the Buyer was left to deal with tenant issues if they failed to deal with it in the Contract and did not intend to assume the tenant. That included all of the costs and headaches of evicting a problem tenant. In addition, it did, on occasion, create financing issues where the application was made as if the property was owner occupied. Why was that onus on the Buyer when it was the Seller who had privity of contract with the tenant?
Under the current system, the onus to remove an unwanted tenant falls squarely on the Seller where we believe, it should! If the Seller wants to remove that responsibility the onus is on them to ensure that there is a term added to the Contract that the Buyer agrees to assume the existing obligations to the tenant.
Remember, the issue here is that there are 2 contracts in the case of a tenant – the contract as between the Seller and the Buyer and the contract between the Seller and the tenant. You must ensure that this is kept in mind when reviewing offers with your Sellers.
If you are taking a listing and there are tenants in the property then you need to address this issue with your Seller and when an Offer is received you must deal with this as a specific issue. This is no real difference than under the prior system as tenants’ rights have not been removed EXCEPT now it is the Seller and the Seller’s Realtor who have the obligation to address it.