Buying or Selling Tenant-Occupied Properties in Alberta?

Navigating the real estate market in Alberta can be complex, especially when it comes to transactions involving tenant-occupied properties. At Phipps Real Estate Group, we recognize that both buyers and sellers must fully understand the implications of the Residential Tenancies Act (RTA) before making decisions. Here, we break down the essential considerations you need to keep in mind to ensure a smooth transaction when dealing with rental properties.

Understanding Lease Types: Fixed-Term vs. Periodic

It’s crucial to differentiate between the types of leases that existing tenants might have:

1. Fixed-Term Lease: This lease has a specific start and end date. It automatically expires at the end of the term unless both parties agree to renew or extend. Buyers are required to honour this lease until its conclusion.

2. Periodic (Month-to-Month) Lease: This lease continues indefinitely until legally terminated. Buyers inherit the tenants as-is and generally cannot terminate the lease without valid legal reasons.

Notice Requirements for Ending a Periodic Tenancy

This is one of the most commonly misunderstood areas.

You cannot simply give “90 days’ notice” for any reason under a periodic tenancy. Under Alberta’s Residential Tenancies Act (RTA) if the tenant has not committed a substantial breach, a landlord can only end a periodic tenancy for the following reasons:

• The landlord or a relative of the landlord intends to live in the residential premises.

• The landlord has sold the residential premises and the purchaser or a relative of the purchaser wants to move in.

• The landlord has sold a detached or semi-detached dwelling unit or condominium unit,
  and the purchaser has requested in writing that the tenancy of any tenants in that unit be
  terminated.

• The landlord intends to demolish the building.

• The landlord intends to use the residential premises for a non-residential use, such as
  business purposes.

• The landlord is an educational institution, and the tenant is no longer a student or will no
  longer be a student at the termination date specified in the notice of termination.

• The landlord is converting the unit to a condominium.

Notice Periods for Termination

When terminating a periodic lease, landlords must provide three full tenancy months’ notice. A tenancy month is based on the lease’s start date. For example, if the tenancy began on the first of the month and the property is sold, the earliest potential termination might be three months after notice is given.

Major Renovations and the 365-Day Rule

If you’re considering major renovations that require tenants to vacate, be aware of the 365-day written notice requirement. This applies to significant structural work and renovations that cannot be completed while tenants reside in the property. Minor cosmetic changes, however, do not necessitate this lengthy notice period.

Rent Increases: Timing is Everything

In Alberta, rent increases are permitted only once every 365 days, whether for periodic or fixed-term leases. If you are in a fixed-term lease, you cannot increase rent until that term has ended. Always provide proper written notice for any rent increase, as there is no rent control in Alberta—the rental market is governed by supply and demand.

Negotiating with Existing Tenants

Because the rules regarding the termination of periodic leases are strict, buyers and sellers may consider negotiating terms with existing tenants. This can involve:

• Mutual agreements to end tenancies early.

• Converting month-to-month leases into new fixed-term agreements.

Remember, any agreements regarding leases are made between the landlord and tenant, not directly between the buyer and seller.

Advice for Buyers and Sellers

• For Sellers: Clearly outline and clarify lease terms early in the listing process. Transparency is vital as potential buyers will want to understand their rights and obligations fully.

• For Buyers: Exercise caution when assuming periodic tenants; ensure that you are well-informed on the rights and limitations outlined in the RTA before making a purchase.

Conclusion

Buying or selling tenant-occupied properties in Alberta can be challenging, but understanding the landlord-tenant relationship as governed by the RTA is essential. By familiarizing yourself with these regulations, you can navigate the process more effectively. If you need personalized advice or assistance, the team at Phipps Real Estate Group is here to help you every step of the way. Contact us today to learn more!