COVID-19 creating legal issues for sellers

April 23, 2020

With just over a week until rent cheques are due, the blizzard of rent and mortgage deferrals that hit the Canadian housing market on April 1 is expected to blow in once again.

While most landlords at this point have come to some understanding with their tenants regarding late or adjusted rent payments, senior partner Mark Weisleder says there is no shortage of other issues his clients are still coming to grips with when it comes to selling their homes.

One question Weisleder has been repeatedly asked involves what to do when a sold property’s rental occupants express an unwillingness to vacate, ostensibly because of the restrictions COVID-19 has placed on their ability to either work or locate a new place to live.

Multiple sellers approached their tenants in February with 60-day notices to vacate, which allows them to stay in place until the end of April while giving the property’s new owners until May to take possession. But with the 60-day period now elapsed and the world stumbling collectively through an economic concussion many of these tenants are choosing not to leave.

According to Weisleder, sellers in this predicament have few options.

“You can’t evict them because the Board is closed down,” he says, estimating that the backlog of cases due to clog up Ontario’s Landlord Tenant Board could last up to a year. “You have to work something out. Work with the tenant – maybe find them another place to live – otherwise you’re going to have to extend your deal. Or maybe pay the buyer an incentive to just assume the tenant for as long as it takes.”

Weisleder says there have also been cases where buyers have been refused access to their new properties by the current rental tenants, even though the seller has agreed in writing to allow them into the property.

“They have the right,” he says of the tenants. “It’s safety.”

With 44% of Canadian households reporting some form of work disruption, there will inevitably be a number of potential buyers forced to abandon their plans mid-deal. The consequences could be dire for any buyers who agreed to purchase a property only to see their finances go up in smoke weeks later.

Weisleder points to the instant dip the Ontario market experienced following the 2017 Fair Housing Plan as a parallel. Prices and appraised values plummeted, forcing a rash of buyers, whose financing plans fell apart, to back out of deals to which they had already agreed.

He recalls a specific case where a set of buyers had put down a $50,000 deposit on a property only to walk away from the deal because of an inability to get the purchase financed. The sellers wound up selling the home for $500,000 less than what had been agreed to. After being taken to court, the buyers were ordered to make up the difference and pay the sellers the full $500,000.

Regardless of the excuse, whether it be sickness or quarantine or an inability to access capital, buyers cannot walk away after they have agreed to purchase a property.

“If they don’t close and a settlement is not reached, the seller can sue them,” Weisleder says.

But there are similar cases when legal action may not be the proper play for sellers. If a first-time buyer puts down five percent but ultimately walks away from a deal because of a lack of funds, the option to sue exists, but Weisleder questions the value such a step would have for the seller, who would be accruing $30,000-40,000 in legal fees for the privilege of suing someone who has no money.

He suggests that sellers in this case may be better off negotiating further with their buyers, possibly agreeing to the smallest price reduction possible that would still allow theto secure financing.

“For a seller, with these buyers, that’s a good deal,” he says.

The high number of calls Weisleder is fielding should provide comfort for anyone watching the Ontario housing space. The high volume of requests for assistance illustrates just how alive the market was prior to the arrival of COVID-19.

“Most deals,” Weisleder reminds us, “are closing.”