Acquiring a Residential Rental Building
Residential property: rules imposed by law
Residential tenancy is governed by the Civil Code of Québec and the Act respecting the Régie du logement. Much of this legislation is a matter of public order, and therefore cannot be derogated from in a clause of a lease or otherwise. These rules are set forth in the MANDATORY PARTICULARS section of the lease form, a mandatory document.
Before acquiring a residential rental building, it is important to be familiar with the rights, obligations and recourse of lessors1 and lessees.
Can a prospective buyer visit the dwellings?
Owners who put their building up for sale are entitled to show the dwellings to a prospective buyer. However, the following conditions must be met:
- The lessee must be given 24-hours’ notice before each visit. Notice may be given orally.
- Visits must take place between 9 a.m. and 9 p.m.
- The lessee can demand that the owner or the owner’s representative accompany the visitor.
If the lessee refuses without a valid reason, the owner may apply for a court order from the tribunal of the Régie du logement compelling the lessee to allow access to the dwelling.
What is a lessee’s right to maintain occupancy?
Under Québec law, lessees have the right to maintain occupancy. This means that they are entitled to stay in their dwelling as long as they wish, even if the lease was concluded orally, provided they meet their obligations. When a lease expires, lessors cannot evict a lessee because the lease is renewed automatically without a new one needing to be signed. However, certain legal provisions allow lessors to terminate a lease when it expires, on specific grounds dealt with later on (e.g., repossession of a dwelling).
The impact of this right
Compliance with the current lease:
- Immediately after the purchase, the new owner cannot unilaterally change anything in the current lease, which must be respected in full.
- For example, if the former owner collected the rent at the lessee’s dwelling, the new owner must do so as well.
The possibility of modifying the lease upon its renewal:
- The new owner acquires the rights of the predecessor – for example, the right to increase the rent and to modify any other conditions of a lease upon its expiry. These changes may take effect only when the lease is renewed, and in accordance with certain terms provided for by law. A lease is automatically renewed under the same conditions if no steps to the contrary are taken.
To better understand what is involved when the Régie renews a lease and fixes the rent, consult the section Calculation for the fixing of rent.
For more information, refer to the section Renewal of the lease and fixing of rent.
Can a new lessee challenge the agreed rent?
A new lessee may ask the Régie to fix the rent if the amount charged is higher than the lowest rent paid in the 12 months preceding the start of the lease. In such a case, the Régie will proceed in accordance with the rules governing the fixing of rent, and may adjust the rent retroactively to the date corresponding to the start of the lease.
Thus, if there are vacant dwellings when you purchase the immovable and you enter into new leases, you must, barring exceptions, give the new lessees a notice indicating the rent previously paid or fixed by the Régie for their dwelling.
Are there formalities to be met before undertaking major work?
If you plan to carry out major works in a dwelling, certain formalities must be met.
For more information, refer to the section Major work.
Repossession of the dwelling
Can the purchaser of an immovable live in one of the units or have a relative do so?
An owner may repossess a dwelling for his or her own use or to have someone else (see the list below) live in it.
Note, however, that an owner who co-owns a building with a person other than his or her spouse or his concubinary cannot repossess a dwelling2.
For whom may a dwelling be repossessed?
- the owner;
- the owner’s father, mother, son or daughter;
- a relative or person connected by marriage or a civil union of whom the owner is the main material or moral support;
- a spouse of whom the owner remains the main support after a separation from bed and board or a divorce, or after the dissolution of a civil union.
For more information, refer to the section Repossessing a dwelling.
Is it possible to convert the immovable to divided co-ownership (condominium)?
You should know that not all municipalities will authorize a plan for the conversion of an immovable to divided co-ownership (condominium) if the immovable includes a rental dwelling, or included one in the past 10 years. Consequently, it is important to contact the municipality concerned to verify the by-laws in effect.
Authorization by the Régie
In any case, authorization by the Régie is required even when all the dwellings are occupied by persons in undivided co-ownership.
Once a lessee receives a notice of intent to convert to divided co-ownership (condominium), repossession of the lessee’s dwelling by the owner is prohibited. Consequently, as of that time, authorization by the Régie is required to carry out work other than urgent work or maintenance.
Is the immovable part of a housing complex?
If you are interested in an immovable situated in a housing complex, authorization must be obtained from the Régie before proceeding with the sale.
An immovable is part of a housing complex, where:
- several immovables are situated near one another and comprise together more than 12 dwellings;
- the immovables are administered jointly by the same person or by related persons within the meaning of the Taxation Act (e.g., the spouse, a company of which the person is the principal shareholder);
- some of them have an accessory (e.g., a pool or parking lot), a dependency (e.g., a shed), or part of the structure (e.g., the roof), except a common wall, in common.
If the transaction is conducted without obtaining prior authorization from the Régie, any interested person may apply to the Superior Court for a declaration of nullity regarding the transaction.
What about the demolition, division, change of destination or enlargement of the dwelling?
If your project consists in carrying out any of these conversions, there are important special rules to be complied with. See the section Eviction to divide the dwelling, enlarge it substantially or change its destination.
What to check before buying
In addition to taking into account the legal aspects, you should do the following:
- examine the leases in effect for the immovable, so as to be familiar with all of the conditions you will have to meet;
- check whether there is any legal action at the Régie du logement or the Court of Québec;
- check whether the current owner sent out notices of rent increase or received a reply or a notice of non-renewal of the lease from the lessees;
- check whether the owner recently received or replied to any other notice (e.g., a notice to sublet the dwelling or to assign the lease) from a lessee;
- check the applicable municipal by-laws to ensure that the immovable complies with safety, sanitation, maintenance, habitability and zoning requirements.
And, since owners are responsible for both apparent and latent defects that reduce the enjoyment of the premises by the lessees, it would be wise to have the immovable inspected by an expert.
After the purchase: two steps to be taken right away
- Notice of change of owner
As soon as the transaction has been concluded, the lessees in the immovable must be notified of the change of owner in writing and personally. This may be done by the former or the new owner. If notification is given by the new owner, it is preferable to avoid any uncertainty by attaching to the notice a copy of the instrument of acquisition or a letter identifying the new owner from the notary who received the deed of sale.
Until a lessee has been personally notified, he or she cannot be blamed for continuing to pay rent to the former owner.
Moreover, if these formalities are not carried out and a lessee is unsure of who the owner is, the lessee may apply to the Régie for authorization to deposit the rent with it.
Cases before the courts
As a new owner, it is in your interest to inquire about the court cases to which the former owner is a party.
Continuance of suit and intervention are two proceedings that may interest you if you wish to take over any active applications.
Managing a lease
A written or oral lease?
A written lease is much more advantageous for all parties, as its clauses are proof of their existence for both the lessee and the lessor and, as a result, are less likely to be contested than an oral lease. Even in the case of an oral lease, however, a lessor is required by law to give the lessee a document in writing.
Indeed, within 10 days after entering into the lease, the lessor must give the lessee a copy of the lease or, in the case of an oral lease, a document in writing setting forth the name and address of the lessor, the name of the lessee, the rent and the address of the leased property, and containing the particulars prescribed by government regulation.
The document in writing forms part of the lease. The prescribed form must be used for the lease or the document in writing.
Where the lease is renewed and the parties agree to modify it, the lessor must, before the renewal takes effect, give the lessee a document in writing setting forth the modifications to the initial lease.
The lessee may not apply for resiliation of the lease on the ground that the lessor failed to comply with these prescriptions.
Entering into a lease: the main points
Even if you plan to purchase a residential rental building in which all of the dwellings are rented, sooner or later you will have to enter into a lease with a new lessee.
The main points of this process are outlined in the section Signing a lease.
The rules governing access to, and the right to visit, a dwelling
As an owner, you have the right to ascertain the condition of a dwelling or have work done in it. This right must be exercised with discernment. Accordingly, the lessee must be given 24 hours’ notice. This may be done orally, unless major work is to be carried out, in which case notice must be given in writing, with certain mandatory information being specified.
However, if the work is urgent and necessary (e.g., major pipe leak, sparks in the electrical box), you may have it done immediately without notifying the lessee.
Except in an emergency, visits must be made between 9 a.m. and 9 p.m. Work must be carried out between 7 a.m. and 7 p.m.
If one of your lessees does not renew his or her lease, you will have an opportunity to visit the dwelling. Your lessee must allow the visit between 9 a.m. and 9 p.m. Notice need not be given, but you must inform the lessee of each visit ahead of time.
The lessor must act in a reasonable fashion, and respect the lessee's privacy and free enjoyment of the dwelling, as well as the inviolability of the lessee's home. It is desirable that the lessor and the lessee come to an agreement on the conditions for visiting the dwelling.
The lessee may demand that the lessor or the lessor’s mandatary accompany the prospective lessee during the visit. Otherwise, the lessee has the right to refuse you access to the dwelling.