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Summary: A tenanted property in Ontario comes with a tenant already in place, so a buyer has two paths: take vacant possession (often through a section 49 N12 notice served by the seller, with 60 days' notice and one month's rent compensation) or assume the existing tenancy and step into the landlord's role at closing.
When you buy a home with a tenant living in it, the most important question is settled before you sign: are you moving in yourself, or keeping the tenant? Ontario's Residential Tenancies Act, 2006 protects the tenant through a sale, which means the answer shapes your offer, your closing, and whether you get the keys to an empty home on closing day.
What does "vacant possession" mean in Ontario?
Vacant possession means the seller hands over the property empty on closing day, with no tenant and no one else in legal possession. It is the default expectation in most residential purchases, but it is never automatic when a tenant lives in the home.
A tenancy does not end because the property is sold. Under the Residential Tenancies Act, 2006 the tenant's rights survive the sale, and the new owner takes over as landlord unless the tenancy has been properly ended first. So if you want an empty home, the Agreement of Purchase and Sale (APS) has to require it, and the seller has to take real steps to deliver it before closing.
What are a buyer's two options with a tenant?
A buyer of a tenanted property in Ontario chooses one of two paths: take vacant possession, where the tenant leaves before closing, or assume the tenancy, where the buyer keeps the tenant and becomes their landlord. The right choice depends on whether you plan to live in the home or hold it as a rental.
Vacant possession | Assuming the tenant |
Tenant must leave before closing | Tenant stays; lease continues |
Often relies on a section 49 N12 notice served by the seller | No notice needed; tenancy transfers automatically |
60 days' notice; one month's rent compensation owed to the tenant | Rent, last month's rent deposit and interest transfer to the buyer |
Best when the buyer intends to move in | Best for investors keeping a rental |
Risk: tenant may not leave on time if they dispute the notice | Rent is set; future increases are capped by the annual guideline |
How does an N12 work for a buyer who wants to move in?
If you intend to live in the home yourself, the seller can serve the tenant a Form N12 notice under section 49 of the Residential Tenancies Act, 2006 on your behalf. The buyer (or their spouse, child, parent, or caregiver) must in good faith intend to occupy the unit as a residence for at least one year.
A few conditions and limits apply:
The seller serves the notice, not the buyer. A signed agreement of purchase and sale must exist first, and the purchaser must be an individual, not a corporation.
It only works for small properties. Section 49 applies to a residential complex with no more than three units, or a condo unit.
60 days' notice is required. The termination date must be at least 60 days after the notice is given and fall on the last day of a rental period, or the end of a fixed term.
The tenant gets compensation. The landlord who serves the notice must pay the tenant one month's rent, or offer another acceptable unit, by the termination date.
Good faith is mandatory. If the buyer never moves in and re-rents the unit, the tenant can file a T5 application for bad faith and seek up to 12 months' rent plus moving costs and a fine.
The practical risk is timing. A tenant who disputes the notice can require a hearing at the Landlord and Tenant Board (LTB), and the board has long backlogs. An N12 is a notice, not an eviction order, so if the tenant does not leave voluntarily, enforcement runs through the LTB and can take months. Vacant possession by your closing date is never guaranteed.
What goes in the Agreement of Purchase and Sale?
The Agreement of Purchase and Sale should state clearly which path you are taking, because the wording controls what the seller must deliver at closing. Handle this before you sign, not after.
If you want the home empty, add a vacant-possession clause. Require the seller to deliver vacant possession on closing and to serve a valid N12 within the timelines above. Have your lawyer confirm the notice is correct before you waive conditions.
If you are assuming the tenant, get the documents. Ask for the written lease, the current rent, proof of the last month's rent deposit, and a tenant estoppel or acknowledgement confirming the rent, deposit, and that there are no side deals or arrears.
Decide who serves notice and when. If a tenant is leaving, the seller usually serves the N12 so the timing lines up with closing. Build in enough runway for the 60-day notice period.
Plan for the deposit. When you assume a tenancy, the last month's rent deposit and the interest owing on it should be credited to you on the statement of adjustments at closing.
What does an investor need to know when assuming a tenant?
When you assume a tenant, you take title subject to the existing tenancy and become the landlord for the rest of the lease. You inherit the current rent, you cannot raise it just because the property changed hands, and the tenant's deposit becomes your responsibility.
Rent stays as is. You take over the rent the tenant is already paying. A sale is not a reason to reset it to market.
The last month's rent deposit transfers. The deposit and the annual interest the previous landlord owed on it pass to you at closing, usually as a credit on the statement of adjustments.
Future increases follow the guideline. For most units first occupied on or before November 15, 2018, rent can rise once every 12 months, capped by the annual provincial rent increase guideline (2.1% for 2026), using a Form N1 with at least 90 days' notice.
You keep the lease terms. Any written lease, including a fixed term, continues on its existing terms.
What does the lawyer do at closing?
Your real estate lawyer makes sure the paperwork matches the path you chose and that nothing about the tenancy surprises you after closing. This is where the tenancy details get verified, transferred, and accounted for.
On a vacant-possession purchase, the lawyer reviews the N12 for validity, confirms the timelines, and checks the seller's covenant to deliver the property empty. On an assumed tenancy, the lawyer reviews the lease and estoppel, confirms the rent and deposit, and makes sure the last month's rent deposit and interest are credited to you on the statement of adjustments. Either way, the lawyer raises any tenancy issue as a requisition before closing so it gets resolved while you still have leverage.
Frequently asked questions
Can a seller evict a tenant just because the home is being sold?
No. A sale is not a ground to end a tenancy in Ontario. The tenant can only be required to leave if a valid notice applies, such as a section 49 N12 served because the buyer intends to move in, and even then the tenant can dispute it at the Landlord and Tenant Board.
Do I have to honour the existing lease if I buy the property?
Yes. If you do not take vacant possession, you take title subject to the tenancy and become the landlord on the existing terms. The rent, the lease, and the last month's rent deposit all carry over to you at closing.
What is the last month's rent deposit and who keeps it?
The last month's rent (LMR) deposit is a payment the tenant made that covers their final rental period. When you assume a tenant, the deposit and the interest owed on it transfer to you, normally as a credit on the statement of adjustments, and you apply it to the tenant's last month.
What happens if the tenant refuses to leave by closing day?
An N12 is a notice, not an eviction order. If the tenant does not leave, the matter goes to the Landlord and Tenant Board, which can take months given current backlogs. This is why a buyer who needs an empty home should build the timing risk into the offer and conditions.
Can I raise the rent after I buy a tenanted property?
Only within the rules. For most units you can increase rent once every 12 months, up to the annual provincial guideline (2.1% for 2026), with at least 90 days' written notice on a Form N1. Buying the property does not let you raise it beyond the guideline.
What is a tenant estoppel and why does it matter?
An estoppel or acknowledgement is a signed statement from the tenant confirming the rent, the deposit, the lease terms, and that there are no arrears or undisclosed agreements. It protects you from inheriting a dispute you did not know about when you assumed the tenancy.
About the author
Joel Fox is a co-founder and COO at Ownright. He helps run the firm's day-to-day work on Ontario residential closings, refinances, and sales, and writes regularly to demystify the parts of a transaction that most homeowners only encounter once or twice in their lives.
At Ownright, we focus entirely on Ontario residential real estate law. We help buyers and owners with purchase closings, sales, refinances, and status certificate reviews, all through a digital platform backed by a team of licensed Ontario lawyers. If you are buying a tenanted property, you can start your closing online or get in touch with any questions.
Legal references: Residential Tenancies Act, 2006, S.O. 2006, c. 17, ss. 48, 49, 57, 72 and 135; Landlord and Tenant Board, Interpretation Guideline 12 (Eviction for Personal Use, Demolition, Repairs and Conversion); Ontario rent increase guideline for 2026.
Important note: This article is not legal advice. No one should act, or refrain from acting, based solely on the information in this post or any linked materials without first seeking appropriate legal or professional advice.
