The client
A buyer in Leamington is purchasing a legal duplex for $445,000 with $44,500 (10%) down, planning to occupy the main unit and expecting the second unit to turn over vacant at a fresh $1,700/month market rent once the seller's tenant moved out.
Purchase price
$445,000
Leamington legal duplex
Down payment
$44,500 (10%)
Insured file
Buyer's own income
$8,300/month
Occupying the main unit
What the buyer had budgeted on
Vacant possession, $1,700/mo market rent
Per the seller's own N12 notice
What actually survived the sale
The tenant, at their real $1,100/mo lease
The N12 compensation was never paid
The problem
The seller had served the sitting tenant an N12 notice -- ending the tenancy for the landlord's (here, the buyer's) own use -- and told the buyer's agent the unit would be vacant at closing. Ontario's Residential Tenancies Act requires a landlord serving an N12 to compensate the tenant one month's rent, or offer comparable alternate housing, before the notice is effective. That compensation was never paid.
Why an unpaid N12 let the tenancy survive the sale
- ▸A landlord's-own-use eviction under s.48.1 of the Residential Tenancies Act is conditional on the required compensation actually being paid
- ▸Without it, the tenancy simply continues, and a new owner becomes the tenant's landlord by operation of the same rules that would have applied to the seller
- ▸The buyer's plan to occupy the whole property, needing no rental-income qualification at all, depended entirely on an eviction that had never actually taken legal effect
The buyer was left qualifying as a landlord with a real tenant, on that tenant's own existing lease, under the same investment property rules any rental purchase carries, rather than simply moving into an empty second unit -- and the tenant's actual, existing rent was materially lower than the fresh market rent a vacant unit would have supported.
The numbers
The insured purchase still worked, but on a lower qualifying rent than everyone involved had assumed.
| Qualifying on the assumed vacant rent vs. the tenant's real lease | Amount |
|---|---|
| Purchase price | $445,000 |
| Down payment (10%) | $44,500 |
| Base mortgage | $400,500 |
| CMHC premium — 3.10% at 85.01-90% LTV | +$12,416 |
| Total insured mortgage | $412,916 |
| Qualifying income and ratios | Figure |
|---|---|
| Qualifying income on the assumed $1,700 vacant rent (never actually available) | $9,150/mo |
| Qualifying income on the tenant's real $1,100 lease | $8,850/mo |
| Payment at 6.85% (MQR), 25 years, plus $300 tax/$130 heat | $3,284/mo |
| GDS on the real, correct qualifying income | 37.1% |
| TDS on the real, correct qualifying income | 40.3% |
Both ratios sit comfortably inside CMHC's 39% GDS and 44% TDS maximums on the tenant's real lease -- the $600/month difference between the assumed and actual rent narrowed the cushion, but never came close to closing the file, and it tracks the kind of gap Canada's own rental vacancy data would predict in a tight market like this one.
The solution
A mortgage agent re-qualified the file on the tenant's actual lease before waiving the financing condition, rather than closing on the seller's own assurance that the unit would be vacant.
First, requested the seller's own N12 compensation records directly. No payment to the tenant, and no offer of alternate housing, had ever been made or documented.
Second, confirmed with the tenant's own lease that the tenancy, and its rent, survived the sale. The buyer would become the tenant's landlord at closing, not move into an empty unit.
Third, re-ran the qualifying numbers on the real $1,100 lease before waiving any condition. The file still qualified -- just on a lower add-back than the $1,700 assumption had suggested, using the same rental income offset methods any tenanted purchase would.
The outcome
The file funded on the tenant's real $1,100 legal rent, at GDS 37.1% and TDS 40.3%, both inside CMHC's maximums. Ontario's land transfer tax on the purchase came to $5,375.
The buyer's own plans for the second unit had to change -- rather than immediate personal use, the property is now qualified and operated as a rental until the tenancy itself ends under the Residential Tenancies Act's own rules.
What to take from this file
- 01An N12 notice isn't effective without the compensation the Residential Tenancies Act requires. Without it, the tenancy simply continues -- through a sale, to a new owner, exactly as if the notice had never been served.
- 02Never qualify a file on a seller's assurance that a unit will be vacant. Confirm the eviction's own legal compensation was actually paid, not just promised.
- 03A surviving tenancy transfers its existing rent, not a fresh market rate. The buyer inherits the tenant's own lease terms, not a blank slate.
- 04Keep the financing condition open until the rent figure is actually confirmed. Waiving it on an assumption that turns out wrong is a much worse position than a short delay.
- 05A buyer's own occupancy plan can depend entirely on a legal step that has nothing to do with the mortgage itself. Ask whether any N12 or similar notice behind a purchase was ever properly completed, not just served.
Sources
Every regulatory figure in this file traces to one of these primary sources. Client details and anything that varies by lender are illustrative, as flagged below.
- ▸CMHC — Purchase (Mortgage Loan Insurance) — default-insurance premium schedule by LTV band (25-year amortization).
- ▸CMHC — CMHC Home Start — minimum down payment tiers (5%/10%) and the $1.5M insured price cap.
- ▸OSFI — Minimum qualifying rate for uninsured mortgages — the minimum qualifying rate — greater of contract rate + 2% or 5.25%.
- ▸CMHC — CMHC Reviews Underwriting Criteria — GDS 39% / TDS 44% maximums and the 600 credit-score floor for insured files.
- ▸Ontario.ca — Calculating Land Transfer Tax / Land Transfer Tax Refunds for First-Time Homebuyers — Ontario's marginal land transfer tax brackets and first-time-buyer refund.
- ▸Provincial/territorial mortgage-broker legislation fetched directly (bclaws.gov.bc.ca, legisquebec.gouv.qc.ca, fcaa.gov.sk.ca, web2.gov.mb.ca, nslegislature.ca, assembly.nl.ca) plus FCNB's own site for NB and CanLII's index for PE — see notes for per-province method — provincial mortgage regulators and licence titles.
Illustrative in this file — lender-specific, not rules:
- ▸4.85% contract rate — rates move daily; not a quote.
- ▸the 50% add-back percentage — each lender sets its own rental-income treatment; some offset rather than add back.
Authority & provenance
How this case file was built
We publish the origin, the verification method and the reviewer for every case file, so you can judge how far to trust it before you rely on it with a client.
Where it comes from
Derived from files handled by Treadstone’s fulfillment desk and from scenarios contributed by partner brokerages. Names, employers, exact amounts and dates are changed so no client or file is identifiable.
Provenance: Composite — a pattern seen repeatedly on fulfilled files, not a single transaction.
What is verified
Every regulatory figure traces to a primary source listed above and was checked against it on the date shown. The arithmetic is recomputed by machine on every rebuild.
Anything that varies by lender is labelled illustrative rather than stated as a rule.
Who reviewed it
Reviewed for Canadian regulatory accuracy before publication, and re-checked whenever a cited rule changes.
Reviewed by: Nicholas Parson, Treadstone Associates — reviews every case file before publication.
This case file is professional reference material for licensed mortgage professionals. It is not advice to a borrower, and it is not a lender commitment. Insurer rules, qualifying rates and provincial taxes change — confirm the current position with the insurer, regulator or lender before you rely on any figure here in a live file.