Selling a house with tenants in situ
Having a rental property can be a great investment and a dependable way to earn an income. But what if you’re a landlord looking to sell?
This can be a tricky prospect if you’ve got a property with tenants, especially if they’re long-term, respectful of your property and reliable at paying rent.
Ideally, no one wants to feel forced out of their home. And if you’re a landlord selling a house with tenants still in place, then you may not need to resort to serving notice if you can sell with your tenants in situ.
Let’s look at everything you need to know if you want to sell a house with tenants in situ.
The basics of selling a house with 'tenants in situ'
Simply put, selling a property with ‘tenants in situ’ means there’s already a tenant living in the property when you sell it. Depending on the terms of the tenancy agreement, the tenant can continue to live in the property under the same terms, even once it’s been bought by a new owner.
The most common type of tenancy in England and Wales is an assured shorthold tenancy (AST). This came into effect in 1989 to give landlords more control. Under this type of agreement there’s an agreed initial ‘fixed term’, typically of 6 or 12 months, after which you only need to give 2 months’ notice to regain possession of your property.
Less common tenancies are ‘assured tenancies’ and ‘regulated tenancies’, where tenants have the right to stay in the property until they die. These sorts of tenants are known as ‘sitting tenants’. This would have implications for a new landlord as they wouldn’t be able to serve notice, so it’s a good idea to check what sort of tenancy you have.
What are the advantages and disadvantages of selling with tenants in situ?
As with any property decision, there are pros and cons to selling your rental with the tenants still in place.
The benefits
- Tenants in situ can be a positive selling point if you’re marketing the house to other landlords as an investment property. It means that the property won’t be empty during the (sometimes lengthy) conveyancing process and your rental yield won’t be affected. Plus, the new landlord has a guaranteed rental income right from the start.
- The new landlord won’t have to go to the hassle and expense of marketing the property to let and finding new tenants.
- Reliable tenants who pay their rent on time and keep the property in good nick are an appealing prospect to landlords looking to buy a property to let.
- You don’t need to worry about serving notice to your tenants and waiting for them to vacate the property. Once you find a buyer, you can get the ball rolling fast.
The downsides
- If there are tenants remain in situ then you’ll need to market the property as ‘buy-to-let’. This could narrow the pool of potential buyers on the property market and could mean that it sells for less.
- The tenancy agreement can’t be changed by the new landlord without the tenants’ consent. If the tenants refuse any changes that the new landlord wants to make to the terms, this could lead to delays or even result in the buyer pulling out.
- If the tenants are unreliable and aren’t paying rent on time or looking after the property, this could put off new potential landlords.
- The tenants may not be too flexible when it comes to viewings, and legally you’ll need to give them 24 hours’ notice. This means it may be harder to arrange times for potential buyers to see the property.
Other points to consider
As with any house sale, there's a lot you'll need to consider before you start the process.
Talk to your tenants
You’ll need to inform your tenants as early as possible of your intention to sell and keep them informed throughout the process. Selling a house can be stressful for everyone involved, and it’ll be especially important to keep them on side so that viewings can be arranged. Remember, you must give them at least 24 hours' notice in writing. Crucially, you’ll need to ascertain if they actually want to stay in the property once it’s been sold.
Get legal advice
Find a conveyancing solicitor with experience in selling these sorts of properties. The contract will need to state that you’re selling with tenants in situ, rather than ‘vacant possession’ which is the norm. The solicitor will be able to help navigate the transfer of the tenancy agreement, deposit and all other important documentation.
Handling your tenant’s deposit
When your tenants moved into the property, it was your legal obligation to make sure their deposit was placed in a government-approved tenancy deposit protection scheme. When it comes to selling the tenanted property, you should flag to the buyer that they’ll need to re-protect the deposit and keep it within the correct scheme.
Make sure the tenancy is all in order
It’ll be your responsibility to prove to any potential buyers that the tenancy is all in order. Any new landlord will want to see…
- Rent payments are up to date
- An EPC certificate
- Gas safety certificate
- An electrical installation condition report
However, your conveyancer should be able to guide you on these necessities.
How do I sell with tenants in situ?
Selling a property with tenants may come with some extra hoops to jump through, but it is still remarkably like selling a non-rental property.
The first thing you’ll need to decide on is which route you want to take for the sale. Your options will include…
Using an estate agent
They will help to market the property, arrange viewings and handle the communication between you and the buyer. However, it’s worth bearing in mind that estate agents will charge a fee for their services (typically 0.75%-3% of the agreed price) and some can be wary about taking on a property with tenants in place.
Sell direct to a buyer
This cuts out the estate agent and would mean you’d have to go through the sale process in a more DIY way. Beware that this route can be quite time intensive, as you’ll need to handle the marketing of the property yourself, as well as arrange viewings.
Sell the property at auction
Even with tenants in place, you can still use a public auction. Although, you’ll want to make sure there’s enough interest in your property. If you lack a good amount of bidders, you might not get the best price.
Use an cash house buying service
If you’re looking for speed and certainty, then an property buying company could be the solution. Services like UPSTIX will make an instant cash offer on the property, even with tenants still in place. These offers typically come at an 11% discount from the market value, but will also allow you to set your own completion date, as iBuyers can be ready to buy in as little as 7 days.
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