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Closing on a rental property is exciting, especially if it’s your first one. It’s easy to become overwhelmed, however, given the sheer amount of paperwork you’ll have to sign. Closing day can take hours and requires you to bring a certain number of documents. While your real estate agent and an attorney can help guide you through the process, it’s best to know what to expect well ahead of time.
Before we dive into what you need to know for closing day, let us help you get there smoothly with easy financing and fewer junk fees. To get started today, simply click the link below to book a free strategy call with our team here at LendCity.
Who will be there?
Depending on where you are and the regulations in your province, you may or may not sit down with the seller on closing day. You can and should have your real estate agent and/or attorney present, so they can review the documents and ensure everything is in order. You’ll also meet with a closing agent, who might be an attorney, title officer or escrow company officer—they’ll be a neutral third party who is there to make sure all the documents are executed properly.
What to bring
Here’s what you should bring to the meeting, at a minimum:
Two forms of photo identification are required so that the closing agent can verify your identity. Otherwise, anyone could sign legally binding agreements on your behalf.
SIN card number
Make sure to bring your SIN card, or at least have the number handy.
Proof of insurance
Your mortgage company will probably require you to have insurance before they lend you the money. While your closing agent may already have that information, it’s best to be prepared.
Final purchase and sales contract
Your lawyer should have already reviewed the final Agreement of Purchase and Sale at this point, so there won’t be any surprises on closing day.
Cashiers or certified cheque
Finally, make sure that you have the means to pay your closing costs, including the down payment. Your agent or attorney will let you know how many cheques to bring. Generally, personal cheques are not sufficient.
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Documents to sign and costs to pay
Assuming you’re closing with a traditional mortgage, here are the documents you may need to sign and the costs you’ll pay on closing day, beyond the down payment:
If you’ve used a lawyer to guide your sale (and you should), you’ll pay their fees on closing day.
If the seller needs adjustments—for example, if they’ve paid property tax beyond closing day—you’ll need to pay those adjustments and credits.
Land transfer tax
All provinces have some form of land transfer tax, which is a percentage of the property’s purchase price. Some cities (like Toronto) also have their own land transfer tax.
Township or municipal levies
Some new homes in subdivisions require a township or municipal levy, which you pay on closing day.
Provincial sales tax
Some provinces levy taxes on the mortgage default insurance premiums. Ask your attorney or agent if this applies to your sale.
You’ll need to pay for title insurance if there are ownership disputes.
New build HST/GST
This tax is part of Canada’s Harmonized Sales Tax or Goods and Services Tax (the name is dependent on which province you’re buying in).
Certificate of location costs
This pays for your title inspection, land surveying and more.
It’s wise to budget at least several hours for the closing process, and more if it’s a complicated purchase. The last thing you want to do is rush when signing legally binding financial agreements.
What happens if a tenant is already living in your rental property?
As you probably know, landlords can sell their properties even if tenants are still living there. Legally, you can’t boot out tenants just because the building is changing hands. You’ll still need to adjust your Agreement of Purchase and Sale for this situation. For example, as the buyer, you’re not entitled to “vacant possession” since one or more tenants will already be living in the home. You also need to insert clauses to account for the fact that you’ll act as the new landlord.
Generally, the laws favour tenants, since the property sale affects their home. Be sure to do your due diligence and learn about your province and city’s regulations involving the sale of buildings with tenants. Some real estate professionals tend to gloss over this, which can lead buyers to believe they can get rid of the old tenants, renovate the property and rent it out for a higher price. However, in the vast majority of cases, tenants are entitled to stay until their lease is up—and even then, you might not be able to terminate their lease.
Once their lease term is up, there are three circumstances when you can terminate their lease. First, if the landlord plans to make major repairs to their home. Second, you can terminate a lease if you, the owner, plan on moving in. In many cases, that’s not applicable—but if you’re purchasing a multi-unit rental, you might need to remove one tenant for your own family. Finally, owners can terminate a lease if they plan to move in without selling the property.
If you need to terminate a rental agreement, you’ll need to give the appropriate notice (usually 60 days), including following local rules for how the notice is delivered. A real estate attorney can guide you as to the appropriate process and will alert you to any provincial or local laws that may affect terminating or assuming a residential tenancy. Make sure you sort this out well before closing day so that closing isn’t further complicated by tenancy issues.
Get ready for closing day
Now that you have a general idea of what to expect on closing day, you should feel more confident going in to sign papers and take possession of your new rental property. If you have any questions about special circumstances, like assuming a tenant and their lease agreement, be sure to ask your attorney and agent in advance. The more prepared you are, the smoother the process will be.
Now that we’ve told you what you need to know for closing day, let us help you get there smoothly with easy financing and fewer junk fees. To get started today, simply click the link below to book a free strategy call with our team here at LendCity.