Selling Your Rental to the Tenant Who Lives There: How the Lease Ends at Closing and Where the Deposit Goes

When your buyer is already paying you rent, closing splits into four separate amounts: the month’s rent, the last month’s deposit and its interest, your listing commission, and the buyer’s land transfer tax refund. Each follows its own rule, and all of them depend on one date.

I’m Arthur Zhao, a real estate broker in Toronto. About a week before closing, your lawyer sends you a draft statement of adjustments. There is a line for property tax and a line for rent. There is nothing for the last month’s deposit your tenant paid when they moved in, and nothing for the interest on it. The buyer on the other side of that statement is the same person who has been paying you rent every month.

When the purchaser is your sitting tenant, the money does not collapse into one closing figure. It splits into separate amounts, and each one is governed by a different document. Below I follow each amount to where it ends up, and then explain why every one of them depends on getting a single date written down correctly.

Amount one: the rent for the month you close

Rent is the amount most sellers assume will take care of itself, because the standard agreement already deals with it. According to the OREA Agreement of Purchase and Sale (Form 100, section 18), rents “shall be apportioned and allowed to the day of completion, the day of completion itself to be apportioned to Buyer.”

In a normal sale of a tenanted property, that sentence moves the rest of the month’s rent from the old landlord to the new one. Here the new owner is the person who paid that rent. If your tenant paid the full month on the first and you close partway through, the clause means you keep the rent for the days up to the day before closing, and the days from closing onward are credited back to the buyer, who is your tenant. In effect, they stop paying you rent for days on which they already own the home.

Two things change the arithmetic, and your lawyer needs to know about both. One is whether the tenant has actually paid rent for the closing month or whether their deposit is covering it, which is the next amount. The other is whether the tenancy is set to end on closing day or on some other date, which is the last section of this article.

Amount two: the last month’s deposit, and the interest you may still owe on it

The only security deposit an Ontario landlord may collect is a rent deposit under section 106 of the Residential Tenancies Act (s.105(1)), and it cannot be more than the lesser of one rent period’s rent and one month’s rent (s.106(2)). What happens to it at the end is not optional. Section 106(10) says: “A landlord shall apply a rent deposit that a tenant has paid to the landlord or to a former landlord in payment of the rent for the last rent period before the tenancy terminates.”

That wording ties the deposit to whichever rent period turns out to be the last one. If the tenancy ends on closing day, the deposit belongs to the rent for the period that contains closing. That is why the deposit and the rent apportionment from the previous section cannot be worked out separately: if the deposit is paying the closing month, then no rent was prepaid for that month, and nothing should also be credited back as though it had been.

Then there is interest. Under s.106(6), a landlord must pay interest on the deposit every year, at the rent increase guideline rate in effect when the payment is due. If you skipped any of those payments, s.106(9) lets the tenant deduct the missed amount from a later rent payment. Once the tenancy ends at closing there is no later rent payment, so any unpaid interest is something to settle on the closing statement rather than leave hanging. Form 100 has no sentence dealing specifically with the deposit or its interest; in practice the two lawyers settle both on the statement of adjustments against what s.106 requires.

Amount three: your listing commission, if the property is already listed

If you signed a listing agreement and your tenant makes an offer while it is in force, the standard wording does not give you an exemption just because you already knew the buyer. OREA Form 200, section 2, has the seller agree to pay commission “for any valid offer to purchase the Property from any source whatsoever obtained during the Listing Period, as may be acceptable to the Seller.”

The words “from any source whatsoever” are the ones that matter here. Under the standard form, an offer from the person already living in the unit is still an offer obtained during the Listing Period. If you think your tenant may want to buy, the time to deal with it is when you sign the listing agreement, by agreeing in writing with the brokerage on how an offer from that tenant would be treated. Raising it after the offer arrives leaves you arguing against the printed text.

Amount four: the buyer’s land transfer tax, and the refund your tenant may claim

Land transfer tax is paid by the buyer, not by you, but it often decides whether a tenant can afford to close, so it is worth understanding. According to section 9.2 of the Land Transfer Tax Act (Ontario, 2026 consolidation), a first-time buyer can claim a refund of tax paid on a home used as their principal residence. For a closing on or after January 1, 2017, the maximum refund is $4,000 (s.9.2(2.1)(b)).

Renting is not one of the tests. For an agreement signed after November 14, 2016 and closing on or after January 1, 2017, the purchaser must be at least 18, a Canadian citizen or permanent resident, must never have owned an eligible home anywhere in the world, and their spouse must not have owned one while they were spouses (s.9.2(1)). The buyer must occupy the home as their principal residence no later than nine months after closing (s.9.2(2)(b)) and must apply within 18 months of closing (s.9.2(5)). Years of paying rent in the same unit neither help nor hurt; the ownership history is what counts.

The list of eligible homes in s.9.2(1.1) includes a condominium unit and a duplex, triplex or fourplex, among others. So a tenant who rents one unit of a duplex, triplex or fourplex you own is not ruled out just because they are buying the whole building. Whether they qualify still turns on their own ownership history and on how they will occupy the property.

Why all four amounts have to point at the same day

Each amount above is measured against a date. The rent split runs to closing day. The deposit pays the last rent period before the tenancy ends. The interest question closes when the rent payments stop. Those dates only line up if the tenancy actually ends on closing day, and the tenancy does not end simply because the tenant becomes the owner.

Section 37(1) of the Residential Tenancies Act says “A tenancy may be terminated only in accordance with this Act.” The Act has no provision that ends a tenancy because the tenant buys the unit. What it does provide, in s.37(3), is that no notice of termination is needed “if a landlord and a tenant have agreed to terminate a tenancy.” The Landlord and Tenant Board’s form for that is the N11, Agreement to End the Tenancy. Section 37(3) does not itself say the agreement must be in writing, but a written agreement naming closing day as the termination date is my recommendation, because it is the record every one of the four amounts relies on.

The sale agreement has its own reason to address the tenancy. Form 100, section 2, provides that on completion “vacant possession of the property shall be given to the Buyer unless otherwise provided for in this Agreement.” When the buyer is the occupant, it makes sense for the agreement to say so plainly: that the buyer is the current tenant, that the tenancy ends on the completion date by agreement, and how the deposit and any interest owing are to be dealt with on the statement of adjustments. How exactly that is worded is a question for your lawyer.

Before you sign anything with your tenant-buyer

Grouped by who you need to speak to, because each amount sits with a different person.