In my post entitled “Promising Vacant Possession on Closing of Tenanted Property”, I outline some of the potential pitfalls that can occur when a buyer insists on vacant possession on closing when the subject residential property is tenanted. In short, the safest route for a seller is not to promise vacant possession, but merely to promise to give the residential tenant’s notice that they must vacate the premises because the new owner needs the house for themselves.
But the saga continues, as reflected in this recently released decision by the Ontario Court of Appeal. It is a stark reminder that both sellers and buyers are under a very heightened duty to act in good faith when agreeing to put tenants on notice to vacate the premises for any new owner that asserts they need the property for themselves, and how both parties can remain liable to the evicted tenants if there is foul-play.
The issue came to light in this case because there was ample evidence available before the transaction closed that the buyer never intended to live in the newly acquired house. The most flagrant piece of evidence being that prior to closing the buyer asked for the ownership to be put in a corporate name – the court reasoning that corporations can’t live in a residential house.
When the matter first went before the Ontario Landlord and Tenant Board, the seller was vindicated because the arbitrator concluded that at the time the notice was given (early on after the Agreement of Purchase and Sale was signed), the seller truly believed the buyer intended to move in, such that the notice to vacate he delivered to the tenants was valid and genuine in every respect.
The Ontario Court of Appeal considered the arbitrator’s approach to assessing bad-faith was to restricted and banal, and the appellate court gave cogent guidance to the Board: the level of enquiry required to determine whether there was good faith in asking the tenant to leave must involve two things:
A) An extensive review of the seller’s conduct/actions/knowledge over the entire period between when the agreement of purchase and sale was consummated, to the time of closing. Put another way, if any time a seller gets wind that the buyer is lying about their intentions to move in, the seller is under a heightened obligation to alert the tenants of this discovery, to give the tenant the opportunity to remain in the home; andB) An extensive review of the purchasers’ conduct/actions over the same period, and even beyond closing (ie: did the purchaser actually move in?), because the tenants have rights to remain in the property if the purchaser did not act in good faith (even though technically still not the official landlord at the time the notices were given).
When all of these concepts are wrapped up, you arrive at the following conclusion as expressed by the appellate court:
“Accordingly, an unlawful eviction under s. 49(1) can occur in one of three ways:
(1) the landlord gives the s. 49 termination notice in bad faith but the purchaser genuinely requires personal possession of the rental unit;
(2) the landlord gives the s. 49 termination notice in good faith but the purchaser does not genuinely require personal possession; or
(3) the landlord and purchaser each independently act in bad faith or collude, in bad faith, to evict the tenant by means of a s. 49 termination notice.
If the Board considers only the landlord’s bad faith, and it was the purchaser who was not acting in good faith, the purchaser is shielded from any consequence under the RTA and the tenant loses an opportunity for redress as against the purchaser. Such a result undermines the RTA’s stated purpose, in s. 1, to protect tenants from unlawful evictions.“
As such, even though sellers can protect themselves better when they agree to deliver a notice-to-vacate instead of offering vacant possession on closing (as reflected in my prior post), sellers must remain cognisant, however, that by agreeing to participate in the buyers’ request to deliver notices to vacate on existing tenants, the sellers have agreed, to some extent, to accept a continuing and ongoing obligation to protect the tenants should they find out that the buyer is lying about moving in.
This case also potentially puts real estate lawyers under a heightened obligation to advise their real estate clients of this duty, and more importantly, theoretically a sellers’ real estate agent is now fastened with the responsibility to be on the lookout themselves for any activity in the file that might suggest the notice to vacate was a sham: like in this case where the seller’s lawyer was told that the transfer was going to be made to a corporation. In many cases, the seller is oblivious to these “instructions,” and it may be the case that only the seller’s lawyer is aware. If that information is not shared by the lawyer to their seller client, their client is then unable to take corrective steps to protect their tenants, and any damages awarded to the tenant(s) as a result may very well be visited upon the conveyancing lawyer who failed to share that vital information to their client when it became known and available to the lawyer.
Elkins v. Van Wissen, 2023 ONCA 789
Promising Vacant Possession on Closing of Tenanted Property