The client
An investor purchased a tenanted rental property in Pembroke, with a sitting tenant already in place under a lease the seller had signed the year before.
Purchase price
$340,000
20% down payment
Mortgage
$272,000
Uninsured, non-owner-occupied
Tenant's actual rent
$1,450/month
Yearly lease, unregistered, in actual occupation
Personal income
$6,800/month
Before any rental income
The problem
The seller's own listing materials cited $1,750 a month as the unit's realistic market rent, based on what comparable units in the area were asking. The actual lease the tenant had signed — a yearly agreement, never registered against title — specified $1,450, several hundred dollars lower, and the lender needed to know which figure the mortgage would actually be qualified on.
Why the lower, actual figure was the only one that mattered
- ▸Under Ontario's Land Titles Act, a lease for a term not exceeding three years, where there is actual occupation under it, binds the property regardless of whether it was ever registered
- ▸That protection has nothing to do with appraisal methodology or how a lender treats rental income for qualifying purposes — it is a question of whose lease actually survives the sale
- ▸A new owner cannot simply raise the rent to the seller's higher estimate on closing; the existing tenant's lease terms carry over exactly as signed, until it comes up for renewal on its own schedule
The seller's estimate wasn't fraudulent or even unreasonable as a description of the local market — it just wasn't what this specific tenant, in actual occupation, was legally paying. That distinction decided the number the file actually had to qualify on.
The numbers
Once the tenant's real lease terms were confirmed, sizing the purchase around them was straightforward.
| Sizing the rental purchase | Amount |
|---|---|
| Purchase price | $340,000 |
| Down payment (20%) | $68,000 |
| Mortgage | $272,000 |
| Total debt service, tenant's actual rent counted | Figure |
|---|---|
| Payment at the qualifying rate (7.20%), 25 years | $1,939/mo |
| Property tax | $320/mo |
| Heat (lender estimate) | $140/mo |
| Car loan | $260/mo |
| Rental income counted (50% of $1,450) | -$725/mo |
| Total debt service | 35.3% |
35.3% held up comfortably counting only the tenant's actual, below-market rent — in line with what national rental vacancy data shows for a stably tenanted unit. Qualifying on the seller's higher estimate instead would have understated the borrower's real carrying cost the moment the true lease terms came to light.
The solution
A mortgage agent licensed under Ontario's Mortgage Brokerages, Lenders and Administrators Act went straight to the tenant's own lease document rather than accepting either party's characterization of what the unit was worth in rent.
First, obtained and read the actual signed lease, confirming its term, the actual rent and that the tenant remained in genuine occupation.
Second, confirmed with the lender's solicitor that the unregistered lease still bound the property under the Land Titles Act's own treatment of short-term leases in actual occupation, so the buyer's expectations about raising rent on closing had to be corrected early.
Third, submitted the file using the tenant's confirmed $1,450 lease, applying the rental income treatment this particular lender publishes for its own file, rather than the seller's higher, unverified estimate.
The outcome
The purchase closed qualified on the tenant's real $1,450 lease, giving the lender an accurate picture of the file's actual carrying cost from day one. The buyer understood going in that raising the rent to the seller's higher estimate wasn't an option until the existing lease came up for its own renewal.
Nothing about the file needed correcting later. Qualifying on the verified figure the first time avoided the awkward conversation that would have followed if the mortgage had been sized around income the property wasn't actually generating.
What to take from this file
- 01An unregistered lease under three years, with actual occupation, still binds a new owner in Ontario. Registration status has nothing to do with whether it survives a sale.
- 02A seller's 'market rent' estimate is not the same thing as what a sitting tenant is actually paying. Always confirm the real lease before qualifying rental income.
- 03A new owner cannot unilaterally raise rent on closing for a tenant already in occupation under a valid lease.
- 04Qualify on the confirmed, documented figure — not the listing description. The gap between the two can be the difference between a file that holds up and one that doesn't.
- 05Read the actual lease. A phone call confirming 'the tenant pays around market' is not the same as the signed document.
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.
- ▸OSFI — Minimum qualifying rate for uninsured mortgages — the minimum qualifying rate — greater of contract rate + 2% or 5.25%.
- ▸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:
- ▸5.20% contract rate — rates move daily; not a quote.
- ▸50% rental income counted toward qualifying — each lender publishes its own rental income treatment; this is not a universal regulatory figure.
- ▸the TDS figure — this is an uninsured rental purchase, so there is no CMHC ratio ceiling — the number is informational.
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.