Purchasing a property with a tenant in situ is becoming more common for UK landlords with buyers and sellers both seeing the advantages.
What does “tenant in situ” mean?
It means that a property is listed for sale and the tenant currently living in the property is expected to stay in the property during and after the sale. Depending on the exact conditions of the tenancy agreement the tenant will be entitled to live in the property even after it has been purchased by the new owner. The sale of the property and the introduction of a new owner does not override the tenancy agreement or the tenants rights.
Pro’s of buying with a tenant in situ:
- A reliable, trustworthy tenant is valuable to any landlord, so having someone in situ means you don’t need to search for a new tenant and incur the costs of finding a tenant.
- You are guaranteed income from day 1 of ownership
- You can create revenue projections with confidence knowing you have rental income until at least the end of the current tenancy agreement.
- The property is ready to let, legally. This can save not only a lot of money but time knowing the property is legally ready to be revenue generating.
Con’s of buying with a tenant in situ:
- Everything might not be above board. Carry out proper due diligence with an experienced professional to make sure everything is above board when buying the property.
- Removing existing tenants – if you wish to re-let the property once you’ve taken it on and before the existing tenancy has finished you must serve appropriate notice to the sitting tenant. However, if they are within their initial 6-month period, you are unlikely to be able to serve notice until month 4. When buying a property in situ there can be lots of benefits but also numerous technicalities that you must be aware of before making the purchase.
Key questions to ask before buying a property with tenants in it:
Before buying a property with tenants in situ make sure you seek advice on the property from a solicitor or licenced professional who has experience with dealing with a tenant in situ transaction.
These are some of the key questions that you need to ask when buying a property with tenants in situ:
- Does the property have valid energy performance, gas safety and electrical safety certificates?
- What fire safety measures have been installed and are they fully functioning?
- When was the last safety check completed?
- Does the property require a licence and what are the details?
- Are there any local council restrictions that the seller is aware of about the type of let that is permitted?
- Is the property furnished, if so make sure all the furnishings comply with the fire safety regulations?
- Have all portable electrical items had a portable appliance test within the last 12 months?
- Was the tenant given a copy of the ‘How to Rent” guide from the department for communities and local government?
- Was a full inventory taken at the start of the tenancy? If not, request that one is done so you can review the full inventory of the property and the tenancy.
- Has the deposit been registered with an approved scheme?
- What is the rental history of the tenant and has there been any issues with the tenant during the current tenancy?
- When is rent due and how is it paid?
What happens with deposits when a tenant is “in situ”?
The handling and transfer of the deposit is normally handled by the conveyancing solicitor. The exact procedure is dependant on how the deposit is handled by the current tenant. In most cases, there may not be much to do other than notify the deposit scheme that there has been a change in ownership. You can find out more about what happens to a deposit if a property is sold during a tenancy here.
In most cases the easiest way to complete a transfer of a property with tenant in situ is to complete the purchase the day rent is due. This removes any complications with rent being passed between the buyer and seller at a later date and generally makes the process easier for everyone involved.
The seller must make arrangements for the rent to be collected by the new owner. If you are retaining the same letting agent you may not need to notify the tenant to change payment details.
If you’re managing the property yourself, a letter of authority is needed from the seller to ask the tenants to pay rent to the new owner.
Finally, a Section 48 notice must be served to inform the sitting tenant that the property has been legally transferred to a new buyer as per Section 3 of the Landlord and Tenant act 1985. If this is not done you won’t be able to claim for any future rent arrears, property damage and service charges as any court case isn’t enforceable.
What rights does a tenant in Situ have?
Properties that are sold with tenants in situ have previously always been sold at a discount, due to the added risk that can be involved. A tenant in situ has more rights than a standard tenant.
The majority of tenancies when taken over are Assured Shorthold agreements. Under AST landlords can evict using Section 21 or Section 8. However, tenants in situ are protected under the Rent Act 1997 . If it’s determined they moved into the property before 27th February 1977, ‘no-fault’ section 21 notices cannot be used to evict the tenant.
The only way to evict this type of tenant is if they fall into arrears or you provide them with other suitable accommodation. There are some other areas such as breaching the terms of their agreement or sub-letting the property. If in the unlikely case the tenancy pre dates 1989 the task of evicting the tenant is even harder as Section 21 notices do not apply making it extremely difficult.
We always advise speaking with a professional who has vast experience and can navigate these waters with you.