What is Tenancy at Will?

Understanding Tenancy at Will

Anna Dunaeva DLegal Anna Dunaeva April 4, 2022
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What Does Tenancy at Will Mean

In its broad sense, tenancy at will is an arrangement between a landlord and the tenant which is not a periodic tenancy agreement. It does not expire on a specific date but allows the tenants to occupy the property for as long as both the tenant and landlord agree. Often, tenancy at will exists without a formal lease agreement written between the parties in a landlord tenant relationship.

What is Tenancy at Will in the context of house purchase in Alberta

In its narrow sense, tenancy at will is a useful tool in a residential real estate purchase. Essentially, tenancy at will is an arrangement where a purchaser gets the keys and obtains possession of the property before the full payment of the purchase price is sent to the original property owner.

There are different reasons for the buyer to delay the payment to the seller. For example, the buyer may have insufficient funds to pay the purchase price in full because their mortgage lender delays the funding. Alternatively, the buyer’s closing funds may be coming from the sale of their own home, which gets delayed for some reason. Another example is where the delays occur through the seller’s fault. For example, suppose the seller is not ready to close the transaction because they cannot provide all required documentation to the buyer.

Why Tenancy at Will?

Sometimes people buying residential real estate need to get the keys and enter the property even though the completion of their purchase transaction has been delayed for some reason. For example, suppose a buyer needs to move out of their old home because their lease term has expired, or they sell it on the same day. Also, consider that the buyer’s mortgage funding gets delayed, and the buyer expects to have sufficient funds to pay the purchase price to the seller only after the scheduled closing date.

Alternatively, suppose the buyer has sufficient funds to close the deal and has scheduled their movers or cleaning of the new premises and cannot cancel it. However, the seller does not have all the required closing documents. In this case, the buyer cannot pay the full purchase price because the seller is not ready to transfer their ownership rights.

If there are delays at closing for some reason, a tenancy at will agreement is a way for the buyer to obtain possession of the new premises without paying the full purchase price to the seller.

How Tenancy at Will Works

There are particular rules for the seller to give possession of the property to the buyer under a tenancy at will. First, the buyer’s lawyer should have a signed tenancy at will agreement on file.

The tenancy at will agreement generally provides that the buyer obtains possession of the new home as a tenant only, cannot make any alterations to the property, must pay interest on the purchase price to the seller, and vacate the property on notice.

Additionally, among other things, the buyer should have paid their down payment to their lawyer in trust and signed all their mortgage and purchase documents. Also, the buyer should have signed a transfer of title back to the seller. Further, the buyer should have property insurance for the new home in place.

Pros and Cons of Tenancy at Will

Tenancy at will agreements give benefits to both parties of a transaction. However, it poses drawbacks for both parties, too.

When the buyer gets access to the property on a tenancy at will basis, they become responsible for the property and must have property insurance in place. Further, they bare the costs of utilities and property tax. However, the title is still in the seller’s name, and the buyer lives on the property as a tenant until the purchase transaction is completed. As a result, the buyer cannot cause damage to the property, nor can they do any alternations or start renovations.

When the seller gives early possession, the buyer usually pays a daily charge. A standard residential purchase contract provides that the payment to the seller under a tenancy at will arrangement equals ATB prime plus 3% on the cash to close if the closing is delayed through the buyer’s fault. If the delay results from the seller’s fault, the daily charge payable by the buyer is calculated based on the buyer’s mortgage rate.

Although a tenancy at will provides flexibility at closing, it also creates uncertainty. Consider that the seller can evict the buyer on a very short notice (usually, 24 hours) with written notification. Consider also that the property can sustain serious damage while it is in the buyer’s possession under a tenancy at will arrangement. Finally, suppose the purchase transaction ultimately does not go through. It can take the seller a while to get the insurance compensation and bring the property back to the market.

DLegal Lawyers Are Here For You!

Understanding the tenancies at will is essential for real estate transactions. But, please, be very cautious when accepting it without first discussing it with a property lawyer who understands local regulations. At the very least, do your research. Being mindful about your rights is vital for each real estate closing.

DLegal real estate lawyers are proud of helping buyers and sellers across Alberta to complete their real estate transactions smoothly and effectively. So, feel free to reach out to our friendly team whenever you need guidance on your property matters.

Questions?

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