You’re renting a place when your landlord informs you that they’re putting the property up for sale. What is your right as a tenant? What is their responsibility as a landlord? Lubos Pesta, Q.C (Walsh LLP) has written the following article, and while addressed to agents, it outlines the rules as set forth in the Residential Tenancies Act in Alberta.
Tenants’ Rights in the Sale of a Property
A correct understanding of the rights of landlords and tenants is essential in representing both the sellers and prospective buyers of renter-occupied properties. Without understanding the applicable laws and inserting effective clauses in the relevant agreements for sale, you may be left with a disappointed buyer who is unable to move into their new home on closing day.
First, you must recognize that the default provision in our standard AREA Residential Real Estate Purchase Contract is for existing tenants to remain in the property being sold. Clause 4.1 of the agreement states that vacant possession will be granted by 12 noon on the closing day “subject to the rights of the existing tenants, if any.” This means that, if there are tenants in the property, then they can remain in the home upon its sale and the seller is not obligated to either terminate the tenancy or evict the tenant prior to closing unless the parties agree otherwise. The onus is on the buyer’s agent to insert appropriate terms/conditions in the agreement if the buyer would like to secure vacant possession on closing.
A correct understanding of the Residential Tenancies Act (Alberta) is critical if the buyer wants vacant possession. The law is different for the two types of tenancy:
Fixed Term Tenancy
It is not possible for a landlord to terminate a fixed term tenancy for any reason (including the sale of the property) short of non-payment of rent or some other material breach of the tenancy by the tenant. As a result, if the existing owner signed a lease for a specified term (such as six months or a year), the lease cannot be unilaterally terminated by the landlord until the term expires. If the owner is desperate to terminate the tenancy to accommodate a sale, then a financial incentive may have to be provided to the tenant to secure a mutually-agreed early termination of the lease.
The upside of a “fixed term” tenancy is that no notice of termination needs to be provided at the end of the lease. When the term expires the tenant is expected to move out unless the lease is renewed.
If the tenancy is periodic in nature (most commonly month-to-month) then a different set of rules applies. A month-to-month tenancy can only be terminated for one of the reasons prescribed in the regulations. Intending to sell a home and listing it for sale is NOT a valid reason for terminating a tenancy.
A sale of the property can only be given as a reason for terminating a tenancy after all conditions in a binding sale agreement have been waived and only if the purchaser or a relative of the purchaser intends to occupy the premises. In that instance a full three months written notice must be provided (the notice must be served before the first day of a tenancy month in order to be effective on the last day of the third month). This means that where tenants are in possession of a home being sold and the tenancy is month-to-month the EARLIEST that prospective buyers could legally move into the home themselves is three full months AFTER all conditions are waived.
In instances where the buyer wants to either demolish the home or conduct substantial renovations (which have to involve more than just painting the walls or replacing the carpets) a full 365-day notice of termination has to be given.
Industry members should be careful not to obligate their clients to unrealistic terms inserted in agreements for sale (such as the early termination of a fixed term tenancy) that their clients will be unable to perform. This could result in extra costs and claims for damages against both the client and the industry member.
Lubos K. Pesta, Q.C.
2800, 801 – 6th Avenue SW
Calgary, Alberta T2P 4A3
The comments expressed in this article are for information purposes only and serve to highlight general principles. REALTORS® must remember to work in the client’s best interest, whether representing a buyer or a seller client. Each situation is different and you should seek legal counsel before pursuing any particular course of action. These articles do not create a client/lawyer relationship and do not constitute legal advice. The opinions expressed herein are those of the author and not of AREA.
Copyright Alberta Real Estate Association. Reprinted with permission. AREA makes no guarantee as to the accuracy or completeness of this information.