The UK’s private rent sector is bigger than ever. How can investment buyers protect themselves when buying property with a tenant in situ?
With more people renting in the UK private sector than ever before, and for longer periods, how can investment buyers best protect themselves when buying a property with a tenant in situ? More and more landlords are realising the benefit of buying a property with a sitting tenant. But what exactly are the benefits and what key considerations should a landlord make before purchasing?
Properties offered for sale with a tenant in situ means there is already a tenant living there. This can occur when a property is sold privately or on the open market (via an estate agent). Depending on the terms and conditions of the existing tenancy, tenants are entitled to continue living in the property post-purchase. The change of ownership does not override the tenancy agreement and the tenant’s rights.
What are the benefits of buying property with a tenant in situ?
Investing in a property with a tenant in situ is incredibly beneficial for landlords. The advantages of this scenario include:
- A reliable, trustworthy tenant is valuable to any landlord. Having somebody in situ means you don’t need to search for one.
- It guarantees you a rental income from day one with the same amount paid and the date fixed until the fixed term within the rental agreement has passed.
- It avoids other related expenses. Managing a buy-to-let property can be quite complex. There are lots of legal and regulatory requirements that need to be met to safely let a property. For example, the electric or heating systems might need to be upgraded.
- You know from the outset what you are getting into. Even with the best tenant vetting processes, there will be tenants who do not pay rent or look after the property. Buying with a tenant in situ means that you can do ‘due diligence’ as part of the purchase process to see whether the tenant has continuously paid on time. Also, when undertaking a viewing, you will get a first-hand opportunity to see how the tenant looks after the property.
- You will hopefully find during the course of the legal process that all legal matters have been attended to such as the provision of an EPC and How to Rent Guide. If these are in place it saves time and provides you with confidence that the legal requirements, detailed in in the Deregulation Act have been complied with.
What should I consider?
If you are thinking of buying with a tenant in situ, first consult a solicitor or conveyancing firm. Make sure they have experience in this area. While the majority of the conveyancing process is standard, with a tenant in situ there are a number of additional checks that the solicitor should be performing on your behalf. They will also be able to answer any queries raised by your mortgage lender if you are purchasing with the assistance of mortgage finance.
When you become the owner of the property, you will take on the associated liability. It’s important that you assure yourself that the property is of a standard to be legally let.
You will need to understand the rights the tenant has. Most tenants will occupy via an assured shorthold tenancy agreement (AST) or a periodic tenancy. This means that if things are not working out you can start eviction proceedings. However, some tenants might be regulated by legislation and might occupy under a protected tenancy. As such, it could prove more difficult to change any terms and conditions or remove them from the property.
Has the current tenancy been entered into correctly? Is there a current EPC, Gas Safety Certificate, or EICR report? Were right-to-rent checks undertaken? Are there appropriate smoke and carbon monoxide alarms in the property? The legal requirements surrounding the creation of a tenancy must be investigated if there are any errors. Otherwise, it may cause you problems if and when you seek possession of the property and evict the tenants.
Was a full inventory and condition report undertaken at the start of the tenancy? If not, then one should certainly be performed as part of the purchase process and ahead of completion of your purchase. You will buy the property in its state and condition on exchange of contracts so if there are any issues, it’s important that you are made aware of these at the earliest opportunity.
Is there a history of rent being paid on time? Are there currently any rent arrears? Also, is there evidence that the property is looked after by the tenant and that the tenant is aware of, and acts in accordance with their tenant’s obligations?
Ensure that any deposit taken is in accordance with the Tenant Fees Act 2019. You should also ensure it has been placed in an approved deposit scheme. On completion, arrangements should be made to transfer the deposit to reflect the new landlord’s ownership. This ensures that the deposit can be returned to the tenant when they vacate the property.
When buying with a tenant in situ, it often makes sense to complete the purchase on a rent due date, so rental payments do not have to be apportioned.
New landlord details
On completion of the purchase, you are required to serve a notice under section 48 of the Landlord and Tenant Act 1987 to advise the tenant of who their new landlord is and their new address.
Existing letting agent
If the property is managed by an agent, you will need to decide whether you are going to leave management to them. If not, you may wish to move to an alternative agent or self-manage. Owing to the complex legal requirements involved in letting properties, the majority of landlords choose to instruct an agent to manage the property on their behalf. This ensures that the rent is paid and any issues with the property are handled promptly and efficiently.
Are there any issues or risks involved?
As soon as you complete on a property with a tenant in situ, you immediately become a landlord. This is a key consideration to keep in mind. You assume all risks and potential liability for the property and the tenancy.
If you are looking to purchase such a property you should satisfy yourself that the risks and obligations have been appropriately dealt with and managed historically and that they can continue to be so moving forward.
Can you sell a property with a tenant in situ?
You may find it more difficult to sell a house with tenants in situ due to the additional work involved in the transaction.
If you are thinking of selling your property, you’ll need to inform your tenants about the sale in advance. You should also give them at least 24 hours’ notice before every viewing.
They’ll naturally be concerned they’re at risk of being evicted by the new buyer, so you’ll need to reassure them that their tenancy agreement will remain valid until it ends.
If you’re considering the purchase of a property with a tenant in situ, it’s good to understand the benefits but also the potential obstacles. At Coodes, our Residential Property team is well-equipped to offer you legal advice and guidance to ensure you’re acting within the law and fully protected.
For more information, speak to Associate Laura Noble via email or through our online form. Alternatively, call: 01872 246204.