Oops! Don’t Let Tenants Put Your House Deal At Risk

If the house you are selling (or buying) has tenants, make sure the purchase contract clearly spells out what happens with those tenants when your deal closes. BC has detailed residential tenancy rules about ending a tenant’s lease. If your contract isn’t clear on whether the tenants are to stay or have to be out when the house deal closes, you could end up with a big problem, an expensive court fight and a failed deal. A recent BC Supreme Court case serves as a warning.

The Martins (all names changed) were looking for a large house for several generations of family members. In 2014, after losing out on buying several other properties, they struck a deal to buy a house from the Prestons in Richmond for just over $2 million. It had over 8,000 square feet of space and a separate coach house. There were also two tenants on the property, one living in the main house and the other in the coach house.

The Prestons told the real estate agent, who represented both parties under a dual agency agreement, that they would deal directly with the Martins about the tenants. In the purchase contract, the agent didn’t record anything about that, or about any existing tenancies. However, the Prestons didn’t talk to the Martins about these tenancies in the two months before the closing, nor did they take any steps to terminate the tenancies.

The Martins’ lawyer prepared the closing paperwork on the basis the Martins would get vacant possession, as specified in the standard form purchase contract prepared by the real estate agent.

Early on the day the deal was to complete, the Martins went to the house. When they found out the tenants were still around, they insisted on getting vacant possession per the contract and refused to close the purchase. The Prestons tried to persuade them to keep the tenants on and, when that failed, tried to end the tenancies and have the tenants move out that day.

Over the next few days, the Martins and Prestons negotiated toward reworking the house deal. But nothing got finalized. In the end, the Martins sued the Prestons for “breaching” (i.e., breaking) the purchase contract. The Prestons counter-sued, blaming the Martins for the deal not closing.

The BC Supreme Court decided the contract called for the Prestons to deliver vacant possession to the Martins on closing. Since the way they had tried to end the tenancies wasn’t in line with the residential tenancy rules, the Prestons had breached the purchase contract. So the Martins were entitled to get their $100,000 deposit back. Expert evidence showed the house value at the time of the breach was pretty much what they’d bargained for, though, so the Martins got no additional compensation for the significant house value increase since then.

Tricky issues with your house deal? Make your purchase contract is subject to review and approval by your lawyer.

Written by Janice and George Mucalov, LL.B.s with contribution by COBBETT & COTTON. This column provides information only and must not be relied on for legal advice. Please contact COBBETT & COTTON for legal advice concerning your particular case. Names of the parties in reported cases have been changed or removed to protect their identity. Lawyer Janice Mucalov is an award-winning legal writer. “You and the Law” is a registered trade-mark. ©Janice and George Mucalov.

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