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The Implications of Renting Your Condominium Unit
Often clients buying a condominium pre-construction are not sure whether they will rent their unit for a while or sell the unit either before or after closing. Purchasers considering being landlords must tread carefully as there are a couple important implications they must consider.
First consideration is renting the unit during interim occupancy. A purchaser of a condominium unit is entitled to a HST rebate (depending on the price of the unit and when the agreement was signed) which is then assigned to the Builder. This rebate assignment is factored into the purchase price the builder has agreed to with the Purchaser. In order for the purchaser to qualify for this rebate and thereby having the ability to assign it to the Builder, the Purchaser or their relative must occupy the unit on the interim occupancy date through until final closing. Therefore, if the purchaser rents out the unit during the interim occupancy period, they will not be entitled to the rebate and the Builder will charge the otherwise assignable rebate amount as an adjustment, to the Purchaser on final closing. It is important to note that Builders can easily find out whether a unit is being rented or not so trying to disguise this behavior is not advisable. If a purchaser is planning to rent the unit during interim occupancy, there is a rebate available to them that they must apply for on their own through the Canada Revenue Agency after they compensate the Builder on final closing. In order to do this, one of the requirements is that the Purchaser has a one-year lease agreement in place with their tenant.
The second consideration is selling the unit with a tenant. If a landlord is selling their condominium unit, the new buyer will be obligated to assume the tenancy. Therefore, the selling landlord should not promise vacant possession if they will not be able to deliver it so. It may be very difficult to find a buyer who will assume a tenant simply because the capitalization rate (total income minus total expenses, including mortgage payments) will not work for the new owner because the selling landlord purchased the unit at a lower pre-construction price therefore incurring lower mortgage payments. Rent can only be increased once a year per government rental increase guidelines. Therefore it is important for a purchaser of a condominium unit who is assuming a tenant to thoroughly do their math to make sure they know what it will cost to carry the property.
Selling a rental property is not a permissible ground to evict tenants under the Ontario Residential Tenancies Act, 2006 (the “Act”). If the new buyer of the unit requires the property for personal use or personal use by a spouse, parent or child, the Landlord may on behalf of the new buyer send notice to terminate the tenancy with sixty (60) days notice. The tenant at that point can move out any time before the sixty (60) days.
The Act is a very strict and heavily in favour of tenants. Removing a tenant from a property can be extremely difficult and time consuming. Further any clause in a lease agreement that is inconsistent with the Act is void. Someone endeavouring to become a landlord should familiarize themselves with the Act and should make sure that they are aware of all the implications surrounding it and their landlord-tenant relathionship when it comes to renting or selling their rented condominium unit
———————————————————————————————————— Related Article: The Implications of Renting Your Condominium Unit Related Article: Understanding Adjustments ———————————————————————————————————–
About the Author
Maxim Zavet is a real estate lawyer in the city of Toronto. His practice is primarily focused in various residential and commercial real estate transactions for individuals, corporations and developers. Maxim had worked at some of Toronto's premier real estate law firms before becoming a founder and partner at PLZ Law.-
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