Introduction to Red Flags in Real Estate Transactions: This is part of a series of blog posts where we share red flags that lawyers watch out for during real estate transactions as part of the conveyancing process. Sharing these insights can empower home buyers, sellers, and real estate professionals to better serve their clients, ensuring smooth and secure property transactions.
When buying or selling a rental property, it’s important to be aware of the additional considerations that come into play during the closing and conveyancing process. All the necessary aspects may not be addressed in the real estate purchase and sale contract.
It is important to first determine whether the buyer will be assuming the tenancy or whether the seller will be terminating the tenancy and providing vacant possession.
Lease/Tenancy Agreement Transfer:
First, determine if the existing lease/tenancy will be transferred to the new owner. If so, ensure that all the required paperwork has been signed and processed. This step is vital to maintain a smooth transition for both the tenant and the new landlord.
Tenant Notice:
If the lease is not being transferred, it’s essential to provide proper notice to the tenant. A seller should familiarize themselves with the Residential Tenancies Act, which typically requires a three-month notice period for month-to-month tenancies. Remember that this notice can only be given once there is a firm contract in place for the property sale. A buyer should confirm that the seller has provided proper notice.
Tenant Schedule and Adjustments:
Make sure you have completed a Tenant Schedule to the purchase and sale agreement, which outlines crucial information about the tenant and the lease terms. Additionally, the financial aspects, such as the damage deposit and per diem rental adjustments, are usually adjusted for by the real estate lawyer on the Statement of Adjustments which shows the amount due on closing.
Move-in Checklist:
Buyers should know about the importance of referencing the original move-in checklist and conducting an updated move-in checklist with the tenant. This step helps identify any damages, allowing the seller to adjust the damage deposit accordingly, and ensures transparency in the transaction.
Property is professionally managed:
Where the seller has retained a property management company to manage the rent including the receipt of rent and security deposit, pay close attention to the closing adjustments and any transfer of payments by the property management company to the seller, tenant, or to the buyer (in some cases the buyer will continue to deal with the same property manager). In particular, watch for security deposits or rental amounts being disbursed by the property manager contrary to the closing adjustments.
By addressing these considerations diligently, you can navigate the conveyancing process for rental properties smoothly, protecting the interests of both buyers and sellers. Understanding the nuances of tenancy laws and documentation is essential for a successful closing transaction.
