Purchase with existing tenants in place

[Choner]

Hi,

I am a newbie investor and currently looking to make an offer on my first investment property.The property is located in Ontario and currently tenated. The house appears to be in good repair (to be verified by a home inspection, of course) and I was satisfied with the upkeep of the unit. My concern is protecting myself in the event that the tenants are delinquent in rent. I was going to ask for vacant possession and I would perform my own due diligence on the current tenants, then my realtor drafted up an agreement with a clause that I wasn't comfortable with.

It read as follows:



"The buyer and seller hereby agree in the event that the tenant fails to vacate the property prior to the completion of the transaction, the buyer agrees to assume the existing tenant upon completion of this transaction."



I informed him that I was uncomfortable with this and that I saw no need for this to be included. The issue became a bone of contention to my surprise (Still can't understand why).

After much debate we left off with an agreement to take this out and insert conditions for the seller to offer proof of financials instead (e.g bank statements showing monthly deposits to verify the tenants were current with rent as the seller claimed).



The next day when the realtor ran it by his boss, he refused to let him insert that clause into the agreement and insisted that I take vacant possession of the property. Apparently his boss was saying things to the effect of "who's the reator here?", and "he must be a rookie". Why that matters, I am not sure.



After much further discussion, to alleviate my concerns, he stated that he will add another clause stating that if the property is not vacant upon closing, the seller will have 60 days to rectify the issue otherwise the deal is null and void with all deposits returned.

I have yet to see the language as it is being drafted up as I type this post.



My question is twofold.

1) Should I be concerned that the realtor and broker are dictating what the terms and conditions of my offer are going to be? I feel as the buyer, the direction should be coming from me and not from the agent and his broker.



2) Are the clauses mentioned above commonplace in purchase of sale agreements and am I overreacting?



I am trying to "peel the onion" to understand what the real issue is behind this but having difficulty doing so. I'm feeling pressured to agree to terms that I am not entirely comfortable with. Any insight or advice is on the process and how I should proceed is greatly appreciated.



Cheers,

 

[invst4profit]

Your broker/realtors issues are that they know the likelihood is in Ontario that the tenants will not vacate by the closing date which would of course kill the deal. There loss.

As far as "common" is concerned many buyers in Ontario do ask for vacant possession due largely to the fact that many landlords are selling because they have nightmare tenants. Don't believe anything you receive without verification and if you do make a "vacant at closing offer" do a full inspection before closing to insure everyone is out.

Also I would advise removing the 60 day condition following closing date. If the place is not vacant at the closing date you will likely receive excessive pressure from your realtor to complete the deal with tenants in place. You definitely do not want tenants that refuse to voluntarily leave. They will be a problem.



The reason I suggest removing the 60 day clause is because if a tenant fights leaving when asked to vacate for the purpose of a sale the owner has no grounds to evict and the deal will die anyway. It is illegal to evict without cause as listed in the RTA and sale of a house is not cause. Your realtor is setting you up.



Oh I almost forgot, FIRE YOUR REALTOR. You are right you call all the shots and they should only advise you. In this case your realtor does not have your best interest in mind.

 

[Thomas Beyer]

You're in the lead. Everyone else follows, including realtor.
You INSTRUCT realtor what language YOU want. PERIOD.




Realtor can advise, and you decide to take advice or not.



Now having said that getting vacant possession in Ontario is very difficult for an owner to my knowledge due to existing rent control laws. Best to find a vacant property (with a different realtor most likely).

 

[Choner]

Thanks for the insight. Looking back, it is pretty obvious that he's trying to protect his own interests over my own. I guess it wasn't clear to me since I had put my trust in him. What I did know is that I felt uneasy about how our discussions went. I was led to believe that my concerns (clauses that I wanted inserted into the agreement) were without merit as I'm a novice investor and I don't understand the intricacies of purchasing investment real estate. I really appreciate the advice, and my position now is that I do not plan on proceeding any further with this. Better to just move on than end up in a situation that I'll regret afterwards.

 

[Choner]

[quote user=ThomasBeyer]You're in the lead. Everyone else follows, including realtor.
You INSTRUCT realtor what language YOU want. PERIOD.
Now having said that getting vacant possession in Ontario is very difficult for an owner to my knowledge due to existing rent control laws. Best to find a vacant property (with a different realtor mist likely).




Thanks for this advice. I was beginning to doubt myself. Reinforcement of what I believed to be true really goes a long way in helping me hold my ground in this situation.



Btw, I just received the updated agreement to the purchase of sale, with the revised clause (i.e. if property is not vacant, seller has 60 days to rectify). Well, to paraphrase, the clause pretty much said that the seller will issue an N12 and N9 form saying that me and my family will be moving in. Then if not vacant upon closing, seller has 60 days to have tenant vacate the property. I see a couple issues with this - first off, the tenant will have no choice but to leave under the Landlord tenant act since I am moving in (correct me if I'm wrong). The 60 day clause is a moot point in my opinion just to give the appearance of satisfying my concerns.



Secondly, I am NOT moving in and plan to rent the property, if tenants become aware after the fact, I am in some legal trouble. I think I leave myself pretty exposed here if I were to agree to this.



Again, it appears to me that these revised conditions will ensure that the property is vacant upon closing to ensure the deal closes (to the benefit of the realtor), but leaves me exposed after the deal closes.



Thoughts?

 

[Mike Milovick]

Everyone is missing the big picture here. Everyone.



The tenants have a RIGHT TO STAY. Just because you, as buyer, want vacant possession doesn't mean anything. Vacant possession can only be granted under very specific circumstances in Ontario. Furthermore, if you serve documents falsely, you can get fined. Big time. By the Landlord Tenant Board.



If you are concerned with the tenant, don't buy the property.



All of the above postings, unfortunately, are jam packed with erroneous advice.

 

[Pindy4]

I'm a novice investor too, and will be buying my first rental property this summer - I plan on making myself familiar inside out with the RTA and LTB. That might answer a lot of questions about how to proceed with matters like these.

 

[invst4profit]

[quote user=Mike Milovick]Everyone is missing the big picture here. Everyone.



The tenants have a RIGHT TO STAY. Just because you, as buyer, want vacant possession doesn't mean anything. Vacant possession can only be granted under very specific circumstances in Ontario. Furthermore, if you serve documents falsely, you can get fined. Big time. By the Landlord Tenant Board.



If you are concerned with the tenant, don't buy the property.



All of the above postings, unfortunately, are jam packed with erroneous advice.


There is nothing wrong or erroneous with anything previously posted from the perspective of a buyer. Any buyer may request vacant possession of a rental property from a seller. The seller then decides if they wish to request there present tenants to vacate. There is absolutely no rule preventing a owner from asking tenants to vacate. The tenants have the choice to vacate or not. Yes they do have the right to stay and legally can not be evicted.



Any problems that arise from requesting tenants to vacate is that of the seller not the buyer.



None of that has anything to do with the buyer and should be irrelevant to the buyer. The only part of the "big picture" that is relevant to the buyer is whether or not the property is vacant at time of closing.

The problem buyers run into is finding out at time of closing that a tenant has refused to vacate and at that time they are then legally stuck with that tenant if they close the deal.



I concur that a buyer or owner in Ontario should never under any circumstances falsely evict for personal use if they do not actually intend to live in the property. Big mistake as the tenants have up to 12 months to come back on the owner taking them to the board. You will be sorry.

 

[Thomas Beyer]

[quote user=MikeMilovick]
All of the above postings, unfortunately, are jam packed with erroneous advice.


That is incorrect !



First: any blog post (certainly mine) is not advice, but an (informed) opinion.



Secondly, I point out that getting vacant possession is difficult in ON !



be very specific in your criticism please as the word "all" is quite broad !

 

[dplummer]

Gregs posts are on the money for Ontario. Chances are slim to none you'll get vacant possession. Mike has a good point... if you don't like the tenants don't buy the property. See if the tenants will fill out your rental application. Do a credit & back ground check.



Doug

 

[Choner]

[quote user=dplummer]Gregs posts are on the money for Ontario. Chances are slim to none you'll get vacant possession. Mike has a good point... if you don't like the tenants don't buy the property. See if the tenants will fill out your rental application. Do a credit & back ground check.



Doug




My initial discussions with my realtor revolved around me requesting to pre-qualify the existing tenants as a condition of the offer. I like what I see from the tenants so far - I just want to perform my own due diligence and have a credit check done. If that came back clear I would have no issues closing the deal and assuming the existing tenants.



I was told by my realtor, that I was a rookie and that he's not allowed to do that. "The pros go for vacant possession". I trusted his advice and decided to approach this asking for vacant possession. Then he drafted up this offer and inserted this "poison pill" clause.



I guess the red flags should have immediately gone up once he tried to pass of my concerns as without merit due to my lack of experience (he became quite flippant and angry when I questioned him).



Cheers,

M

 

[Choner]

I want to thank everyone for their input and insight on my situation. It has been extremely helpful.

There's been a few common themes throughout the posts:



1) Vacant possession is extremely difficult to get in Ontario (although as a buyer, it doesn't do any harm to ask).

2) The buyer is in control of the transaction, not the realtor.

3) I need to get a new agent ASAP!!!!



My experience here should serve as reinforcement to everyone to perform their own due diligence and READ AND UNDERSTAND everything you sign. Don't give into pressure tactics!

This situation could have had a much worse ending. Obviously I am not going to proceed with this deal or with this agent. I'll focus my search on vacant properties only to ensure I have total control.



Wishing everyone the best of success!



Cheers,

M

 

[invst4profit]

Your situation also points out the importance of investors learning the intricacies of the RTA and operations of the LTB long before purchasing there first property.

Going into a situation such as this a investor well versed with the RTA can avoid falling into traps created by blindly trusting much of the misleading information realtors often provide.



Regrettably many new investors don't even know there is a RTA let alone how restrictive it is to the operation of our business.



Regrettably investors are generally forced to purchase existing business which means existing tenants and although this is not necessarily a bad situation it often does require retraining of tenants with bad habits and the occasional eviction.



For those LLs in Ontario it is a bonus having the Ontario Landlord Association (forum) to assist.

 

[stevegwhite]

Hey M,



I'm just in the final stages of picking up my first single family home with tenants in place. As part of the offer process I asked for the current lease and the financials. During the first viewing of the property I met with one of the tenants and asked a few questions. I'm fairly happy with the purchase and the situation overall - there are pros and cons. One of the benefits is I'm able to bank the profits for the next little while and reinvest them on some cosmetic improvements.



My suggestion would be to keep looking. Put your cash in a "high" interest savings account until you find the right combination of property and advisors. You want to find a realtor who is a landlord or investor themselves. I found mine on Google through a forum posting and was a great find. I watched him go through the properties with me and he was sizing it up pointing things out that I never would have thought of.



Remember, it's not a race.



Steve

 

[invst4profit]

Just out of curiosity was it your realtor that suggested buying a single family home as a initial income property investment.

What did you base your decision on to go the single family route.

 

[Choner]

[quote user=invst4profit]Just out of curiosity was it your realtor that suggested buying a single family home as a initial income property investment.

What did you base your decision on to go the single family route.




Actually it was a 2 story home with a registered legal basement apartment with both units currently tenated. That was at my request, not the realtor's. I found homes with a secondary dwelling unit were more likely to provide positive cash flow given the fact that this purchase would be financed 100% (leveraging the equity in my principal residence. HELOC + mortgage). I've been looking at Brampton and just recently Barrie - towns with solid economic fundamentals and relatively close proximity to where I live.

 

[housingrental]

Something tells me that is not going to end well



"Basement tenants are not paying rent, are claiming they shouldn't have to because of maintenance issues (whcih are damages they have created!) and not upper unit tenants want to leave early because of noise issues. What to do?"



Follow up post from Choner next year ?

 

[bizaro86]

[quote user=Choner](he became quite flippant and angry when I questioned him)





I just want to reinforce that you shouldn't proceed to do a deal with this agent. You're the customer in that relationship, and there is no way your realtor should be angry about you asking questions.



Regards,



Michael