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Tenanted residential properties under the power of sale in Ontario

For tenants, borrowers and lenders, it’s essential to know the legal implications when a lender takes possession of a residential property subject to a tenancy agreement.

What happens to tenanted residential properties under the Power of Sale in Ontario?

In accordance with the Mortgages Act, if a lender takes possession of a residential property that is the subject of a tenancy agreement between the borrower and a tenant, the lender is deemed to be the landlord under the tenancy agreement.

This means that if a lender takes possession of a property, they step into the shoes of the landlord, and the tenancy remains as is. If a tenant fulfills their obligations under the tenancy agreement, the tenancy will continue, and the tenant can continue residing in the property.

Rules that the lender (now landlord) must follow:

The lender must comply with the Residential Tenancies Act when taking possession and is obligated to serve notice to all the tenants advising that they are now the landlord.

However, the lender is entitled to obtain specific details about the tenants and the property, including:

  • Entering common areas for inspection
  • Requesting copies of the tenancy agreement;
  • And demanding particulars of the agreement.

Similar to a landlord, the lender must not interfere with the supply of any essential services to the rental unit, such as heat, fuel, electricity, gas, or water.

What happens if the lender wants to sell the property?

If the lender wants to sell the property, they must provide proper notice to the tenant and comply with the Residential Tenancies Act as if they were the landlord. The purchaser must also provide a written undertaking stating that they require the property for themselves or an immediate family member.

If the purchaser or their immediate family member does not occupy the premises within 180 days of the termination date, the former tenant has the right to commence a court proceeding to have their tenancy reinstated.

Important to remember: When the lender takes possession of a tenanted property, they are taking on a tenant as well. They must fulfill their obligations under the lease and the Residential Tenancies Act to avoid any legal disputes.

If you’re a lender, borrower or tenant seeking legal advice regarding a residential property, our real estate litigation lawyers can provide expert guidance to protect your interests and ensure compliance with the law. Contact us today to schedule a consultation and get the legal advice you need.