Mastermind for April 11th Is Leasing the New Buying?
With any luck you have been too busy to notice that I’m late in getting my Mastermind post out this week. Part of the hazards of my job. When the agents are busy, I’m busy too. Still, by the number of people in attendance at Mastermind, there is a remarkable quest for knowledge. So if you missed it, you lost out on an interesting conversation that centred on the theme of leases, tenants and options to buy.
We don’t really talk about it much, but the residential leasing market in Toronto is nearly as hot as the resale market. Those who can’t get into ownership are having nearly as much trouble finding rental accommodation. I have heard a number of stories about multiple offers and condos renting for more than asking. Apparently, leasing IS the new sale and while some agents just can’t be bothered, an agent in our office has found a way to make it work. He has converted one potential renter into a buyer and is on his way to sale two with another client (who started out as a renter). Anyway here are three interesting topics we covered.
First off, an agent found himself preparing a lease on a house. As a little back up to the story, the house was previously for sale and after some time, there were no acceptable offers so the owner decided to just rent it out for a year and try again later. The listing agent had ticked off on the listing that there was an option to buy the property. That is great for the tenant but one question arose; how do you deal with commission? There was some interesting debate on this. First of all, if you are the agent who brings an acceptable tenant to the table, do you also deserve commission if that tenant buys the property? The room was split on the issue. If you thought that you deserved commission, as the selling agent, how could you properly ensure that you would get paid if the tenant opted to purchase? Putting it in the Agreement to Lease makes sense but RECO says you cannot have any clause in an offer that provides a benefit to an agent. Would you put it in a side agreement? Would you have the tenant sign a long-term BRA that was specific to the property? There are lots of different thoughts on the issue.
The second topic of the morning dealt with an issue an agent had on a recent sale of a multiplex downtown. After a lengthy negotiation, and bidding process, this agent’s client ended up buying a four-plex. The offer provided that the landlord or the landlord’s agent would provide notice to evict the first floor tenant for the buyer’s own use. Our agent followed up with the listing agent to make sure proper notice was given. The listing agent assured him that it was. Days before the house closed, our agent found out that the tenant was not leaving. Apparently, on buildings with 4 units or more, notice to vacate must come from the new owner and only after the house has closed. This was news to everyone including the lawyers involved. What’s worse is that the tenant provided the listing agent with this information a month before closing and the agent didn’t pass it along. The other strange thing that occurred between the sale and the closing was that another tenant had moved out and the owner re-rented it without notifying the new owner. The take away here seems to be that when selling a multiplex it is important to insert clauses that deal with any curve balls that might develop.
Finally, an agent was working to find a rental for a foreign student. Without any credit report they were meeting a lot of opposition. This is a big problem for many new immigrants who must accept unfair living conditions in order to live in the city. So what do you think about paying one year’s rent up front? For landlords, it is a windfall to get all the rent in one shot but you must be careful. It is illegal to ask for prepaid rent other than the last month, but it is not illegal for a tenant to offer it.
Clearly, having a strong understanding for tenancy laws, lease preparation and offers to lease is just as important as knowing how to negotiate a sale. Have an awesome week.