Buying a Property with Tenants Already in Place
It’s not unusual for a buy-to let property to have a resident already living there. It can be beneficial to purchase a property with a resident tenant, but you should also be aware of a few things before moving forward.
These are high-risk transactions for the buyer. There is usually a reason why a property was put up for auction. A problematic tenant in situ can often be one such reason.
Technically a seller should be upfront about the property’s current use and the type of tenancy agreement in place. You must also make sure that you are comfortable with the legal responsibility of having a tenant on site. Our specialist commercial and property litigation teams handle claims and disputes arising from auction purchases. This can include claims for professional negligence, claims for breach or misrepresentation, and, as the focus of this article, claims relating tenants left in situ that you need to deal with. Helix Law offers specialist advice on tenancy and litigation. The tenant stays in place after the sale and the new buyer becomes the new owner. This arrangement can occur for a variety of reasons. Most commonly, the tenancy is not yet over or the tenant has a good working relationship with the landlord who agrees to not evict the tenant. . It’s the best way to sell for landlords who want to exit the buy to let market as quickly as possible. There are some advantages for a buyer, such as the ability to buy cheaper (historically), but you should also consider additional risks before taking this route. What Are the Benefits of Buying Property with a Tenant Already in Place?
Lower Cost
The majority of buyers want to live within the property they purchase. The market for a rented property is smaller. It can be difficult to sell a property with a smaller market. For a buyer, this can mean a lower price. Even if a landlord lists it at a higher cost, there is usually more room for negotiations and discounts.
Immediate Rental Income
As a new property owner, it is likely that you will be taking on a rental asset which generates income. This means you won’t need to spend money or time finding a new tenant. You can also count on regular payments as long as your tenancy continues.
Shorter vacant or void periods
Keeping the existing tenant in place means the building won’t suffer from an extended period of being left empty. When reviewing a mortgage application from a potential buyer, lenders are likely to consider the rental history as a positive factor. You may be able borrow more money or receive a faster mortgage offer if you have a tenant in place.
Shared maintenance responsibilities
The tenant will have specific responsibilities to keep the property in good condition and to comply with any other duties in their tenancy agreement. This reduces your obligations as a landlord, resulting in cost savings.
What To Be Aware of With Tenants in Situ
Licencing, Planning and Freehold Permissions and Consents
Some private properties require specific licences before a landlord can let them out. A house in multiple occupation must have a HMO license. You should be aware that these are legal requirements and you may need to apply for a licence if needed. Tenancy agreement and rights
It is important to review the terms of any existing tenancy contract before completing the purchase. This contract will outline the rent and when it is paid, the responsibilities of each party, and the length of the occupancy. Understanding these terms will help you to know what you can expect when taking over the contract.
Assessing the condition
As the property will be occupied throughout the entire sale process, it can be difficult to arrange viewings and surveys. These assessments are still important, so you should inspect the premises thoroughly. Rent payment history
It may seem ideal to simply take over the previous owner’s rental income, but this will only be worthwhile if the tenant pays. You should verify their payment history with the current landlord in order to ensure that they are reliable. There is usually a reason why the vendor wants to sell.
It is also wise to do a credit check to identify any future problems with their ability to repay, as evictions can be costly and lengthy especially when you don’t receive rental income.
Deposit registration and transfer
Ensure the vendor has dealt with all compliance requirements thoroughly and properly. If the deposit is not registered, for example you could be taking a risk that the tenant will claim 3x the deposit, plus the deposit and the tenant’s legal costs. You may not be able evict a tenant. The current owner can transfer the deposit from the tenant to you after your purchase. If you don’t have a deposit protection scheme in place, you can set one up yourself.
Safety Checks and EPCs
You’ll need to verify that the property has current fire and gas safety certificates and Energy Performance Certificates. You may need to spend more time and money to rectify any issues you discover after the purchase.
Frequently asked questions
Is it a good idea to buy a house with a tenant in situ?
There is risk in this approach. You should seek independent legal advice before you bid or purchase. Before you proceed, it is important to identify the risks.
Buying a home with a tenant can be a great deal of fun if you are willing to accept all the risks. Many vendors won’t want to deal the hassle of dealing with a difficult or non-paying tenant. You may be willing to accept the risk and cost of a difficult or non-paying tenant, by pricing these costs into the purchase price. You can be in danger if you take on risks you haven’t fully considered, are unaware of or make assumptions. Some tenancies cannot be terminated without very strict criteria, such as rent act protected tenants or assured tenants. It is important to know the type of tenancy, and the details of the occupier so that you can make sure you are able to carry out your plans for the house if you purchase it. Before you buy, make sure you understand the implications. Make the necessary inquiries and speak to a conveyancing or property solicitor who can give further guidance. Helix does not complete this work.
Final thoughts
As litigation specialists, we can help you after you’ve purchased a property. Perhaps you need to remove a tenant or there is a dispute over non-payment of rent or disrepair. Or perhaps you received negligent advise during the purchase and now it is becoming clear that you cannot do what your intended to do. Our property litigation team is happy to help you in this situation. Helix Law can provide you with more information.
