Whatever your reasons for deciding to sell your investment property, there will be key decisions to make regarding the tenants.
Selling a property with a sitting tenant can sometimes be complicated but doing so can also be hugely appealing to a fellow property investor interested in purchasing your buy-to-let home.
Here, we’ll look at the options available to you if you’re looking to sell a tenanted property, as well as explore tenants’ rights and the effect having a tenant in situ can have on your buy-to-let property’s value…
What is a sitting tenant?
A sitting tenant is someone who is renting a property at the time their landlord decides to sell it.
If your sitting tenant is currently renting through a fixed term tenancy agreement, they have the right to remain in the property until that fixed term expires.
Can I sell a property with sitting tenants?
You can sell your rental property with sitting tenants.
However, it’s important to remember that your tenants have certain rights.
You should always inform sitting tenants of your intention to sell before putting your property on the market and explain your reasons for doing so.
Is it hard to sell a house with tenants?
If you’re selling your property with great, long-term sitting tenants, it can actually be easier to secure a fast sale to a fellow landlord.
Your property will be more attractive to other landlords with good sitting tenants already in place, as they won’t have to market the property and find someone to rent it themselves.
However, selling a rental house with sitting tenants to a buyer who wants to live in it can be more complicated, as your buyer would either need to wait until your tenants’ fixed term agreement was up or try to reach a compromise with them early termination.
What rights do sitting tenants have?
If your sitting tenant signed an Assured Shorthold Tenancy, they have the right to remain in your rental property for a fixed period time outlined in the agreement.
This is usually six or 12 months but can be longer.
Your options with sitting tenants
You have two options if you’re keen to sell your rental property but have sitting tenants.
• You can put the property on the market with sitting tenants
• You may be able to give your tenants notice that you wish to regain possession and sell the property as vacant
If your tenant’s fixed term is due to expire, or they are on a periodic tenancy agreement having not signed a new tenancy after their fixed term expired, you may be able to issue a section-21 notice to regain possession of your property.
Due to the pandemic, section-21 notice periods have changed, and you must now give your tenant at least four months’ notice to regain possession of your property.
That means, for example, if your tenants have eight months remaining on their fixed term contract you would have to wait four months before issuing a section-21 notice.
The pros and cons of selling with sitting tenants
Pros of sitting tenants
• Your property will be potentially more attractive to other landlords, with good tenants already in place
• Your tenants will continue to pay you rent while you market the property for sale, meaning no void periods
• Your property could be less susceptible to vandalism or break-in with tenants still living there
Cons of sitting tenants
• Your potential pool of buyers could be restricted to just other landlords
• A buyer who wishes to live in the property could offer below asking price if they need to evict your tenants after they’ve completed the purchase
• Whoever you sell to, there’s a certain amount of admin you’ll need to complete, including issuing the buyer with Right to Rent documents, gas and electrical safety certificates, your tenant’s tenancy agreement and inventories. You’ll also have to arrange for your tenant’s deposit to be transferred into the name of the property’s new owner
How does a sitting tenant devalue property value?
Selling with sitting tenants can affect your property’s value.
Many landlords will see the opportunity to buy a property with tenants already in place as a great investment and may be willing to pay a good price to take on good tenants and a well-managed Assured Shorthold Tenancy agreement (AST).
However, there are some factors that could negatively affect your buy-to-let’s value:
• The buyer may be bound to the terms of your existing tenancy agreement if the tenants decline to sign a new agreement with them
• The buyer may wish to reference your tenants themselves, meaning more additional costs
What happens when you buy a house with a sitting tenant?
When a buyer purchases a property from another landlord and it comes with sitting tenants, they also inherit any existing tenancy agreement.
If the agreement is an Assured Shorthold Tenancy agreement, it’s possible for the buyer to regain possession of the property at the end of a fixed term or during a periodic tenancy using a section-21 notice if they wish.
A buyer should go through the existing tenancy agreement with their solicitor, as well as a host of other checks on the sitting tenants, as part of the transaction process.
The selling landlord should also provide:
• The existing tenancy agreement
• A valid gas safety certificate
• A valid Electrical Installation Condition Report
• A valid Energy Performance Certificate
• Copies of inventories
• Details of any ongoing maintenance issues
• Details of any rent arrears
If you’re considering buying a property with sitting tenants, you should seek the advice of a professional managing agent before proceeding with the purchase.
Can a sitting tenant buy my property?
Often it can be a good idea to offer your existing tenants first refusal on buying your rental property.
Private Rented Sector (PRS) tenants don’t have a right to buy a rental property, but if they’re able to afford to do so, it can be a beneficial scenario for them and for you as a landlord.
Further reading…
One thing landlords need to know about is tax and our landlord tax guide explains everything.
And if you need to know more about capital gains tax on rental property, we’ve outlined all the key facts here.
