Listing and Selling Tenanted Properties
Listing and selling tenanted properties can be complicated and add complexity to a transaction. From coordinating showings, to providing vacant possession, to provisions in contracts for standard adjustments at closing, there is a lot for REALTORS® to know and understand.
At common law and under section 28 of the Residential Tenancy Act (the “Act”), a tenant has the right to quiet enjoyment of the rental unit. This means they are granted the right to reasonable privacy, freedom from unreasonable disturbance, and exclusive possession of the rental unit.1 This right of quiet enjoyment can sometimes make showing a tenanted property a bit more complicated. REALTORS® should attempt to have the landlord and tenant agree in writing on a showing schedule.
If the landlord and tenant cannot come to an agreement on the showing schedule, then the landlord must give the tenant at least 24 hours written notice before each showing. The notice must provide the reason for entering the rental unit and the date and time of entry.
It is important to note that the landlord or a representative of the landlord (in this case the REALTOR®) must accompany all prospective purchasers to ensure the safety of the tenant’s possessions during showings.2 The time for showings must be reasonable and a tenant can refuse entry for unreasonable showings.
In B.C., a tenancy cannot be terminated simply because the property is being sold. In order to lawfully terminate a tenancy during a sale, the provisions of section 49(5) of the Act must be followed.
Section 49(5) of the Act allows for a two month notice to end tenancy to be provided to the tenant if a landlord has entered into an agreement to sell the rental unit, all the conditions of the sale have been satisfied, and the purchaser has asked the landlord to give written notice to the tenant because either the purchaser or a close family member3 of the purchaser intends to occupy the rental unit.
If a purchaser is requiring vacant possession of the rental unit, REALTOR’S® must ensure there is a term in the contract whereby the seller agrees to provide the two month notice under section 49(5) of the Act. If this term is included in the contract, the buyer must ask (in writing) pursuant to subsection 49(5)(c) of the Act for the seller to provide the notice to the tenant.
Additionally, the BC Financial Services Authority (BCFSA) clause can be used in the contract to address the Notice to End Tenancy, and the BCREA Standard Forms, “Tenant Occupied Property (Buyers Notice to Seller for Vacant Possession)” form, can be used to help facilitate notice being provided.4 In these instances, REALTORS® must also consider the timing of the completion date and possession date. REALTORS® must ensure the requested possession date is after the requested two month notice, or else vacant possession will not be possible. If any issues arise regarding a vacant possession date on the original offer, the possession date may be amended by way of a counteroffer to the buyers prior to acceptance.
If a tenant must vacate their unit under the two month notice to end tenancy, the tenant is entitled to one month’s free rent. REALTORS® should include terms in the Contract of Purchase and Sale confirming whether the buyer or seller will be responsible for this one month’s compensation.
Additionally, both the buyer and seller should be aware that under section 51(2) of the Act, a tenant is entitled to compensation equal to 12 months’ rent if the stated purpose for ending the tenancy under section 49(5) is not completed in a reasonable time and has not been used for the stated purpose for at least six months duration.5
Adjustments for monthly rent payment and security deposits are generally handled at closing as prepared by the legal representatives of the buyer and seller on the statements of adjustment. REALTORS® should advise sellers to continue collecting rent until the adjustment date or end of tenancy (whichever is sooner), and to only return the security deposit to the tenant if the tenant vacates prior to the possession date.
If the tenant is still in possession of the rental unit on the possession date, then the security deposit will be transferred to the buyer (as the new landlord) as a credit on the statement of adjustments at closing. If agreed in the Contract of Purchase and Sale, the statement of adjustments is where you may see the buyer compensating the seller for the one month’s free rent that a tenant was given under section 51(1) of the Act.
Selling a rental unit can add an extra layer of complexity to a transaction. REALTORS® need to be able to advise both buyers and sellers on the process and applicable legislation for showings and ending tenancies.
|1||See section 28 of the Residential Tenancy Act, [SBC 2002] CHAPTER 78 (the “Act”).|
|2||For more helpful information, see Selling a Tenanted Property - Province of British Columbia (gov.bc.ca)|
|3||For the purposes of the Act, a “close family member” is defined as am individuals’ parent, spouse or child, of the parent of child of that individual’s spouse. See section 49(1) of the Act.|
|4||See section 49(5) of the Act.|
|5||See section 51(2) of the Act.|