Selling tenanted property—you might feel like you’ve done it a million times, but are you putting yourself and your clients at risk? Based on the number of claims we receive at E&O, there continues to be confusion with Section 5 (Possession) of British Columbia Real Estate Association’s (“BCREA’s”) standard form contract, with some licensees getting befuddled by the key details in this important section.
A scenario helps illustrate the issue
You’re the seller’s agent of a tenanted property, and the seller has agreed to deliver vacant possession as Section 5 of the contract is not subject to any existing tenancies. You assume that the buyer will deliver a written request to the seller pursuant to s.49 (5) of the Residential Tenancy Act[1] (“s.49 Request”) so that the buyer or a close family member can occupy the rental unit. There’s only one problem—the s.49 Request never comes.
The contract contains the Notice to End Tenancy clause published by the British Columbia Financial Services Authority (“BCFSA”), as follows:
“If the Seller has received from the Buyer a request to give a notice to end tenancy in accordance with section 49 of the Residential Tenancy Act, the Seller will promptly give a notice to end the tenancy in accordance with the provisions of the Residential Tenancy Act to any tenants of the Property.”
Sure enough, the language used in the contract doesn’t require the buyer to deliver a s.49 Request. At the same time, the seller has unequivocally agreed in the contract to deliver vacant possession. Unfortunately, if the buyer does not provide a s. 49 Request, the seller is likely left with two undesirable options:
- End the tenancy by mutual agreement — which is highly risky and uncertain and usually involves paying the tenant a handsome sum of money (if they’re willing to move at all); or
- Breach the contract — and risk legal action from the buyer.
In either case, the seller will likely blame you for getting them into a sticky (and likely expensive) situation.
Assumptions, assumptions, assumptions
One reason why sellers’ agents end up in this less than enviable position is because they assume that a buyer will deliver a s.49 Request but fail to ensure that the contract requires them to do so. This assumption often stems from pre-contractual discussions about whether a buyer will occupy the property. However, if any pre-contractual promise to deliver a s.49 Request is not written into the contract, s. 18 (Representations and Warranties) of BCREA’s standard form contract says that it is not a part of “the deal.”
Hot tips on how to avoid this situation
Know the terms of the contract — if the seller of a tenanted property agrees to provide vacant possession in Section 5 of the Contract, this is their contractual obligation. If you’re acting for a seller, carefully consider how this result would be achieved. If the contract does not require the buyer to deliver a s.49 Request, and the buyer never makes the request, the seller is left with ending the tenancy by mutual agreement or breaching the contract by failing to provide vacant possession. Approach this with extreme caution.
Carefully advise your clients — of the risks associated with accepting an offer as described above, including the risks that a tenant may not agree to end the tenancy at all or demand significant compensation to do so. You should also promptly advise your client (in writing) to seek independent legal advice prior to accepting the offer. Also consider recommending that your client negotiate additional or more favorable contractual terms, such as possession subject to existing tenancies, or term(s) requiring the buyer to deliver a s.49 Request as a prerequisite to vacant possession.
Avoid any surprises — if your seller client requires a buyer to deliver a s.49 Request to provide vacant possession, but the contract includes the BCFSA’s Notice to End Tenancy clause, then Section 5 of the contract should indicate that possession is subject to existing tenancies. The effect will be that a buyer takes possession subject to existing tenancies that may be terminated pursuant to s.49 of the Residential Tenancy Act if they deliver the appropriate s.49 Request.
While a s.49 Request will typically be delivered by way of BCREA’s standard “Tenant Occupied Property – Buyers Notice to Seller for Vacant Possession” form, licensees should also consider whether any written request received from a buyer meets the requirements of s.49 of the Residential Tenancy Act.
Proceed with caution if contract provides for vacant possession
If you’re acting as a seller’s agent of tenanted property, you should proceed with caution if an offer provides for anything other than possession subject to existing tenancies. Don’t assume that a buyer will deliver a s.49 Request to allow your seller to terminate any existing tenancy.
If a buyer wants vacant possession without being contractually obligated to deliver a s.49 Request, a seller’s agent should warn their clients of the risks of entering into such an agreement and ensure that they are adequately informed and advised of their obligations.
For further information about selling tenanted property see:
- “Serving it right-following the rules when ending tenancies for landlord’s own use” – Cheryl Spratt – September 2023 Risk Report
- “Seriously, what’s your deal” – Jude Chow – December 2022 Risk Report
- “Vacant Possession #495” – Mike Mangan – BCREA’s Legally Speaking
- “Listing and Selling Tenanted Properties #553” – Lisa Niro – BCREA’s Legally Speaking.
[1] Residential Tenancy Act, [SBC 2002] c.78
