Sometimes landlords will put their property up for sale with tenants in situ. That might be because:
- They want to sell as quickly as possible
- The tenancy is still within a fixed term
- They don’t want to evict good long-term tenants
The two big benefits for the seller are that another landlord is likely to be able to complete the transaction fairly speedily, and they can continue to receive rental income right up until ownership transfers.
Of course, investors will generally try to buy at below market value, but the reality is that people looking for their own home often don’t want to pay full market price for a former rental property either.
They might worry it won’t have been as well looked after as an owner-occupied home, and they’ll generally want to replace the fittings and décor.
So the sale price might be very similar, regardless of whether the buyer is a landlord or a homebuyer.
Benefits of buying with a sitting tenant
If you don’t hit any problems, there are some great benefits to buying a property with tenants in situ:
- There’s a good chance you’ll be able to get the property at below its ‘true’ market value
- You can inherit a good tenant who will continue to look after your investment and always pay the full rent on time
- You’ll start receiving revenue from the day you take ownership
- You avoid the immediate financial outlay that usually comes with getting a ‘standard’ property ready to rent – assuming the property has been well maintained and is legally compliant – meaning your capital investment is lower
However, that’s the perfect scenario, which isn’t guaranteed!
6 key steps to take before moving ahead
As with any purchase, it’s important to be well informed before committing to buy. Here are six important things to know, do and check:
- Find out why the landlord is selling
Your solicitor/conveyancer will carry out checks on the tenant and tenancy, but it’s well worth finding out why the landlord is selling, by speaking to both the selling agent and the landlord themselves.
You need to be as sure as you can that there aren’t any problems with the property or tenants, or issues such as local licensing or a lack of demand.
- Meet the tenants
Having a good relationship with tenants is one of the keys to a successful let. Meeting them before deciding to proceed with the purchase has two benefits:
- You’ll be able to get a feel for what they’re like and can ask them any questions you might have, e.g. how long they’re planning to stay in the property
- They might be apprehensive or nervous about having a new landlord, so you can introduce yourself properly and reassure them that you’re happy for them to stay in their home.
- Check the property is currently legally let
- Are the Energy Performance Certificate (EPC), gas safety certificate and Electrical Installation Condition Report (EICR) all current?
- Are there the right number of working smoke alarms and a carbon monoxide detector?
- Do all soft/upholstered furnishings included in the sale comply with fire safety regulations?
- Has the tenant been given a copy of the government’s ‘How to rent’ guide?
- Is any deposit registered in a government-approved scheme?
- Use an experienced legal professional
Properties are usually sold with vacant possession, so the purchase contract will need to be tailored to the situation.
There are also extra checks that need to be made, including getting proof of rental payments and carrying out up-to-date referencing and credit checks on the tenants.
So it’s advisable to use a solicitor or conveyancer who is experienced in handling this kind of non-standard transaction.
- Have an appropriate survey
You should always have your own independent survey carried out on a property you’re buying.
And if a property has been rented out for many years and maintenance/repair work has been done, you need to be sure that potentially serious issues haven’t just been ‘patched up’!
As a minimum, we’d suggest getting a RICS Level 2 Home Survey or RPSA Home Condition Survey, and if you have any concerns, it’s worth paying for RICS Level 3 or the RPSA full Building Survey.
6. Work with a Buy to Let mortgage broker
It’s always advisable to work with a professional broker, like our partner Embrace Financial Services, that specialises in the Buy to Let market, and it’s even more important if you’re buying with a tenant in situ.
Lenders are often reluctant to finance this kind of purchase, as it’s considered a higher risk, so you may need help finding a specialist lender. Be aware that you may also need to put down a higher deposit.
Finally, once the purchase has been completed, you must inform your tenant that ownership has transferred and provide them with your contact details:
- Because the existing tenancy agreement (with the previous landlord’s details) is still valid after the change of ownership, a section 48 notice must be issued. This informs the sitting tenant that the property has a new legal owner and gives the address at which notices can be served.
- Section 3 of the Landlord & Tenant Act 1985 states that you must provide the tenant with your name and address no later than the next day when rent is payable - and it is a criminal offence not to do this.
If you fail to give your tenant this information, any future court action you might take against them won’t be enforceable and any rent payable under the tenancy agreement won’t be ‘lawfully due’ until you have served a section 48.
If you have any questions about buying with a sitting tenant, or you’re looking for an existing rental property that’s for sale, get in touch with your local branch here.
Find out what your Buy to Let mortgage options look like with a no-obligation mortgage appointment with the expert advisers at Embrace Financial Services.
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Most Buy to Let Mortgages are not regulated by the Financial Conduct Authority.
The Your Move Content Marketing Team
