Investing in real estate is all about maximizing your profit, and sometimes the best thing to do is to sell. However, selling your rental property comes with a few rules and regulations you need to be aware of. We’ve got the answers to all your question right here. (For the purposes of this article, we are referencing Ontario regulations, so please check the laws in your province.)
Start Off on the Right Foot
Maintaining a good relationship with the tenants is one of the best things you can do. While no formal notice needs to be given until your property has sold, it’s always best to give your tenants ample notice so they can start to get organized. There’s no doubt that selling a leased property can present some challenges but professionalism and good communication between you and the tenant will make everything so much smoother.
Showing the Property
A tenant has the right to possession and reasonable enjoyment of the rental unit. Ontario law states, “…if the landlord and the tenant have agreed the tenancy will be terminated or one of them has given notice of termination to the other, the landlord may enter the unit to show it to prospective tenants between 8 a.m. and 8 p.m. and, before entering, the landlord informs or makes a reasonable effort to inform the tenant of the landlord's intention to enter. A landlord must make reasonable efforts, depending upon the facts and circumstances of each case, to give the tenant advance notice in order to permit the tenant to be prepared for entry into the unit by the landlord to show the unit to prospective tenants.” That said, it is preferable to give your tenant 24-hour written notice to show the property so they have time to get ready and tidy.
So, it’s time to liquidate your investment, and to get the most for it you’ve decided to do a few pre-sale renovations. You’ll need to give your tenants adequate notice if any renovations will be taking place requiring contractors to come in. If the repairs or renovations are so extensive that they require a building permit and vacant possession of the rental unit, you’ll need to issue an N13, which provides 120 days’ notice. After being given a N13 notice, the tenant is allowed to terminate the tenancy at an earlier date by giving the landlord 10 days written notice using a Tenant’s Notice to End the Tenancy (N9 notice). If they are small repairs, you must provide 24-hours’ notice, with the time and date included.
Note: If your rental property is in a building with five or more residential units, you owe your tenant compensation for the inconvenience of vacating the property while the rental unit renovations take place.
Respect the Lease
As you are already no doubt aware, although you can sell a house with tenants in it, you can’t wrongfully evict your renters before the term of their lease is completed. This means that if there is a fixed-term leasing agreement, the sale can’t close until the end of the tenancy, unless the buyer agrees to assume the lease. If you want an earlier closing date, you can try to negotiate with the tenant. Otherwise, the tenant can stay there until the end of the lease term.
As of July 21, 2020, you are required to give the tenant one month’s rent as compensation or offer them another acceptable unit if pursuing the N12 notice on behalf of the purchaser. The compensation must be given before the termination date on the notice.
Be Careful About Photos
Due to privacy laws, you aren’t allowed to take pictures of the property when your tenant is occupying it. This is a major tenant-right when a landlord sells property in Ontario. Your renter, however, may agree to allow you to take pictures. Get this permission in writing.
Speak to Your Accountant
When you sell a rental property, you create taxable capital gains or losses. A capital gain is taxed at 50%, but if your rental property is owned with a spouse or partner, this can be split again. In Canada, there are several strategies you can use to legally lower the amount you pay on your capital gains tax when you sell an investment property. Canada Revenue allows you to use your capital losses to offset capital gains down to zero. You can carry capital losses back three years to amend your prior tax bill(s). Because the amount of capital gains tax is based on your income bracket (among other things) it’s a good idea to time the sale of property for when your earnings are at their lowest so that your tax rate is lower.
How Property Vista Helps
Not only does Property Vista streamline the daily operations of your property business, but when it comes time to sell, having all communication and documentation between you and your tenant centralized helps to smooth the process and keep all your ducks in a row. To learn more about our solutions for marketing, leasing, communication and operations, see our pricing and get a demo of our online property management software.