Significant Risks to Buyers and Sellers of Residential Tenant Occupied Property Which Are Not Addressed in the Typical Standard Form Real Estate Contract PART 1
This is part one of a two-part series.
In the last several years, our Province has implemented significant measures intend to protect tenants of residential housing. This legislation has inadvertently exposed another group of vulnerable consumers, buyers and sellers of residential housing, to risks never seen before in the context of the sale of residential property which is occupied by a residential tenant.
This article discusses the most common and significant sources of risk the author has started to see develop rapidly in BC since the recent legislative change. Additionally, this article provides suggestions about how to mitigate that risk until there is greater industry awareness about the issue, and further legislative reform.
In the typical residential real estate transaction, a buyer may wish to occupy the home in question on completion and the buyer’s real estate agent will draft a contract requesting vacant possession of the property at section 5 of the standard form real estate contract used in our Province as follows:
- POSSESSION: The Buyer will have vacant possession of the Property at [date and time]
. (Possession Date) OR, subject to the following existing tenancies, if any: Vacant Possession
The Real Estate Council of B.C. also recommends real estate licensees use the following clause: Notice to Tenants Clause. The Seller will give legal notice to the Tenant to vacate the premises, but only if the Seller receives the appropriate written request from the Buyer to give such notice in accordance with the requirements of section 49 of the Residential Tenancy Act.
Typically, other than the above two clauses, nothing more is stated about the rights and responsibilities of the buyer and the seller in relation to the buyer’s request that the seller deliver vacant possession of the property.
Usually, it works out. In most cases, the tenant leaves in response to the notice to end tenancy, and vacant possession is delivered as requested by the buyer. However, there are a growing number of cases in which the tenant does not leave. Also, sometimes a buyer may back out of the contract for legitimate reasons after the notice has already ended the tenancy. These scenarios can result in substantial legal consequences for buyers and sellers.
RISKS TO SELLERS WHEN A TENANT FAILS TO LEAVE THE RESIDENTIAL PROPERTY ON THE POSSESSION DATE
Occasionally, after being served a notice, the tenant will dispute the notice to end tenancy. In some rare occasions the tenant will simply refuse to leave. This has become much more common since COVID-19 after the Province implemented an emergency order which temporarily allowed tenants to ignore notices of this kind. This emergency order did not address the impact of that decision for buyers and sellers of real estate and may have caused many sellers across British Columbia to breach their contracts for reasons outside of their control.
If the tenant disputes the notice or does not voluntarily leave, then this raises the following issues.
- Who pays for the cost of litigation with the tenant to compel the tenant to leave? The buyer who requested the notice be served in the first place or the seller who is the tenant’s current landlord?
- The current contractual language typically used does not address this issue, resulting in confusion about which party is supposed to deal with the litigation, which prejudices both buyers and sellers.
- If the tenant doesn’t leave on possession date, then can the buyer back out? The case law is mixed in this area, and there are examples of cases in which the court found it was a material term of the contract giving a buyer a right to terminate, and there are other cases in which the court found that the buyer still had to complete, and only had a right to sue in damages.
- The current contractual language typically used by buyers and sellers does nothing to address this issue. The result of this uncertainty is that buyers are using the failure of the tenant to leave as an opportunity to substantially renegotiate the terms of a contract shortly before completion, using the threat of refusing to complete, in circumstances which could be unfair to the seller who has now become exposed to the risk that the transaction may not proceed.
– Michael Drouillard is vice chair of the board of directors of LandlordBC, and the Principal Legal Counsel at Drouillard Lawyers.
*This article was originally published in the spring 2021 edition of The Key magazine.