If you are thinking of selling your rental property and you have sitting tenants, you might be wondering what your options are. Many landlords assume that evicting their tenants is the best option to ensure a smooth and fast sale.
However, selling a rental property with tenants in situ affords a number of benefits for the seller, buyer and the sitting tenant.
In this guide we explain everything you need to know about selling a property with tenants in residence.
What Does Tenant in Situ Mean?
First of all, let’s explain what tenant in situ means. A tenant in situ, otherwise known as a sitting tenant, is a tenant who is already renting a property and will remain a tenant after the property is sold.
What are the Advantages of Selling a House with Tenants?
Selling a property with tenants in situ is a fantastic option for landlords, offering a cost-effective and relatively smooth route to selling.
This is especially true for landlords who market a property as a buy-to-let investment for fellow landlords, including first-time buyers and investors. Buying a property with existing tenants provides the new buyer with a good sitting tenant immediately, and they can start receiving rental income from the day they acquire the property.
New buyers will not need to go through the time-consuming process of referencing potential tenants either, and can forgo the costs of preparing a property for rent too. These are huge selling points which landlords can emphasise when marketing their property.
Another positive for the seller is the ability to maintain their cash flow from rental payments until the date of the sale. Also, both seller and buyer can avoid void periods with a tenant in situ sale.
As for the tenant, they can remain in the property they have been happily living in without much, if any, disruption.
Things can become a little more complex if you are not selling to another landlord – although this certainly doesn’t mean that you shouldn’t consider doing so in the right circumstances. When you list your property on the market, anyone – not just fellow landlords or investors – will be able to see it. If you are open to the possibility of selling to a non-landlord, you’ll have a much larger pool of prospective buyers.
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What You Need to Know as a Seller
The seller must transfer the tenancy agreement to the new buyer once the sale has been finalised. The terms of the tenancy agreement, including the rental fee, will remain the same until the fixed term has ended. The terms can be altered with the tenant’s consent.
With a tenancy agreement in place, the tenant has the legal right to remain in the property after it is sold. If the new buyer doesn’t want to rent out the property, they can evict the tenant in situ once they have acquired the property.
A potential buyer is likely to ask you for references, credit checks as well as other proof that the tenants pay their rent on time and are solvent.
Selling a property with tenants requires good negotiating skills too. You will need to tactfully discuss your plans to sell the property with the current tenant. Tenants might be concerned with your plans, and it is important that you reassure them that their situation will not change unless they consent to new arrangements with any new potential buyer.
What Happens to the Tenant’s Deposit?
As we explain in our landlord checklist for renting a house, a tenant’s deposit must be protected in a government-approved tenancy deposit protection scheme for tenancies.
During the selling process, the seller and buyer ought to discuss the arrangements for the continued protection of the deposit of the tenant. Usually, the new owner of the property needs to ensure that they re-protect the deposit scheme if they are buying a house in England or Wales.
It is the seller’s responsibility to prove to the buyer that the sitting tenant’s rent is up to date and to provide all relevant certificates and information, including a valid gas safety certificate, the Electrical Installation Condition Report and Energy Performance Certificate.
Where are the Best Areas to Sell a House with Sitting Tenants?
The areas most suited to selling with tenants in residence are areas close to town centres and transport hubs. Slower-moving areas are also typically well suited to selling with tenants in situ.
Conversely, if your property is in a fast-moving area, it might be a better option to sell a house without tenants in order to secure a higher price on the sale.
Can You Sell to Your Tenants?
While not always practical, the simplest solution may be to sell your property to the existing tenants. Of course, many people rent because they don’t have enough money saved up to secure a deposit, or because renting better suits their circumstances.
However, it’s possible that your tenants are looking to buy in the future. If they love living in your house, they can escape the hassle of finding a new property and moving out by buying it themselves. What’s more, this means you don’t have to deal with any potential complexities around asking them to leave.
Whether or not your tenants prove to be in a position to buy, it’s absolutely worth discussing it with them.
Tenant in Situ Selling Process
The process of selling a property with a tenants is as follows:
- Inform the tenants of your intention to put the property on the market, and ask whether they wish to remain as tenants in the property after the sale
- Put the property on the market (stating the property has sitting tenants)
- Arrange house viewings, ensuring that you inform the tenants of when they will take place
Once a buyer has been found and an offer accepted, you will need to draw up a contract that permits the sale of the property with sitting tenants.
We strongly advise hiring a conveyancing solicitor who can apply their professional expertise at this stage of the selling process.
As mentioned above, you will need to navigate other logistics too, including transferring the tenancy agreement and the tenant’s deposit to the new buyer. All relevant safety certificates and information must be transferred too.
Here at Chancellors, our experienced team is at hand to offer expert guidance in all aspects of the selling process, from putting the property on the market, to ensuring a smooth transfer of ownership. We will work tirelessly to enable a smooth process for all parties involved in the sale.
To find out more about our services and how we can help you, please do not hesitate to contact us.
Are there any Disadvantages to Selling a House with Tenants?
As we have explained, there are many advantages to selling a property with a tenant already in residence. However, it is important to recognise some of the disadvantages too.
Firstly, with a tenant already living in the property, an estate agent cannot show the potential buyer around the house unannounced. As a landlord, you’re not simply able to demand access to a tenant’s house at the drop of a hat. Prospective buyers will understandably want to look around the property, which can create a challenge if your tenants are uncooperative. You may have included a right to conduct viewings in your tenancy agreement. If this is the case you will be required to give your tenants written notice of 24 hours prior to the viewing taking place.
Unsurprisingly, things become a little more complicated if no such arrangement exists within your rental agreement. In this case, you’ll only be able to show potential buyers around with the express permission of your tenants. Hopefully, your relationship with your tenants will be good enough that they won’t object to viewings. If they do refuse, your best option is to reach a compromise – perhaps by offering to discount their rent for a month to make up for the inconvenience.
It is also important to keep in mind that the property might not be in the best condition during house viewings. Tenanted properties might be messy and unclean, which would not give the best impression to potential buyers, who might not be able to see the true potential of the property.
Whilst a tenant in situ property is an attractive option for those looking for a buy-to-let opportunity, it will not interest those who are looking to buy a house and become the occupants which accounts for most of those looking to purchase property in the UK. It is unlikely that such a buyer will want to go through the trouble of evicting a tenant.
What is Selling with Vacant Possession?
If you want to increase the interest in your property by widening your audience, you could sell the property without sitting tenants. This is known as selling with vacant possession.
Selling with vacant possession means that the property will be empty on the day the sale is completed. With this selling route, the new owner will be able to move into the property once the sale has been completed.
When you sell with vacant possession, you can serve notice on your tenants immediately. This means that house viewings can be arranged with far greater ease without the need to work around tenants who are already living in the property, as you would with a tenant in situ sale.
Also, without tenants in the property, you can give yourself time to conduct any repairs, adding desirability and value to your house. There might be a number of little repairs needed in the property, which will take time and money, but you can potentially add thousands on the sale through making such repairs.
However, you won’t be receiving any rental income if you go down this selling route. This could prove costly if you do not sell the property straightaway.
A notice period typically lasts two months but it could be longer if a new contract has recently been signed. Keep in mind that some buyers may not be willing to wait so long to move into your property, which can put you in a vulnerable position as a seller.
How Do I Evict a Tenant?
Nowadays, most tenancy agreements are ‘assured shorthold tenancy’ (AST) agreements. With an AST agreement, you can evict a tenant with two months of notice through a ‘Section 21’ notice. It is important to check the exact terms of the contract to establish the first opportunity for serving notice. Sometimes, an AST agreement protects the tenant for the first six months of the tenancy.
Whilst Section 21 does not require you to explain to the tenant why you are asking them to leave, it is always a good idea to explain the situation to the tenant in order that the tenancy is ended on good terms.
Depending on the nature of your tenants and the relationship you have with them, you may run into difficulties during the eviction process.
If the sitting tenant does not leave by the agreed date, you can commence court proceedings. This process can cost hundreds of pounds and take a few months. The good news is that it is quite common for the tenant to leave the property a few days before the court date.
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Correct at time of publication (20th November 2018). The views and opinions expressed herein are those of the individual contributor and do not necessarily reflect those of the Chancellors Group of Estate Agents Ltd or its subsidiaries. References to legislation, best practice and other matters with legal implications such as fees, rules and processes are included for information and editorial purposes only and are not authoritative, nor should they be interpreted as advice. When in doubt you should only take advice from an industry professional or solicitor where appropriate. E&OE.