Buying a tenanted property promises to offer landlords a guaranteed income and no additional tenancy fees, making it an attractive option. For those looking to buy a family home, sitting tenants can mean a lower asking price, which also makes it tempting.
However it’s worth looking at the small print before you decide to buy. So, what do you need to know before you buy a tenanted property?
Two Types of Offers
There are two ways that you can agree to buy a tenanted property, depending on whether you want the tenants to stay or not. If you want the tenants to stay, you should offer to buy the property ‘subject to an on-going tenancy’.
If you want to take possession of the property yourself, or rent the property to different tenants, you should offer to buy the property with ‘vacant possession’. Vacant possession means that the tenants have moved out before the date of exchange of contracts.
A seller has to inform any possible buyer that their property has sitting tenants. After that, it is the buyer’s duty to find out all the details that could affect the sale.
Accessing a Tenanted Property
Under the terms of a standard tenancy agreement, landlords have to give 24 hours’ notice that they wish to enter their property for any reason. The tenant can refuse access if they are unable to be present, for example, if they are at work.
This could make it difficult to access the property, for example to allow surveyors to produce their report.
Without easy access, it could be difficult to assess which of the current fixtures and fittings belong to the current landlord, and which belong to the tenants. It is important to clarify this before exchange of contracts.
Buying ‘Subject to an On-Going Tenancy’
Honest, reliable tenants can take the stress out of letting a property, but even so it is important to check out the details.
To start with, find a solicitor who has had experience with this type of Buy to Let purchase. Remember that you must arrange a Buy to Let (rather than a residential) mortgage.
Next, get a copy of the current tenancy agreement. Find out how long the current tenants have been living in the property, what the rental payments are, and whether the tenants have kept up with payments.
This will give you an idea of whether you should stick with the current residents.
Now consider whether the current rent is a market rent for the area. If the rent is a lot lower than similar properties, you might need increase the rent in order to pay your mortgage. If you had hoped to keep the current tenants on, this might spoil your plans.
It is also a good idea to ask your solicitor to check whether there have been any legal notices issued on either side, or whether there are any non-standard agreements as part of the tenancy. These checks will help to prevent any nasty surprises.
Buying ‘With Vacant Possession’
If you offer to buy a tenanted property and want the tenants to have moved out by the completion date there are a number of things you need to keep in mind.
The most straightforward thing to do is insist that the property will be vacant by the completion date. Ask your solicitor to make sure this special condition is added to the contract. This will help to protect you financially if any issues arise.
If you have prospective tenants in mind, it is a good idea to make sure that the current landlord has taken the proper steps to remove the current tenants. This means serving an eviction notice 2 months before the end of the fixed term of the tenancy. The paperwork must be correct to make the eviction legal, so try to get copies if you can.
Although you might assume that tenants have to leave once they have been served with the eviction notice, this is not quite the case. It is possible that the tenant will refuse to leave, and in this case the landlord will have to go to court to obtain an eviction order. This can take time and money to sort out.
In cases where the council pays the current tenants’ rent you might find that the local authority advises the tenants to stay put until they receive a court order. This is because if the tenants leave before they are evicted, they will lose entitlement to social housing support.
If the tenant refuses to leave, and you cannot exchange contracts on the agreed completion date, the seller will be liable for your financial losses.
Preparing to Become a Landlord
Whether you hope to keep the current tenants or find new ones, it is helpful to ensure that the date that contracts are exchanged is the same as when rent is due. This makes it easier to distribute rental payments to the right party without complications.
Decide whether you plan to manage the property yourself, or use a letting agency to help find tenants and manage the property.
Current letting agents can be very helpful in providing information about sitting tenants, and will be able to provide information on this situation regarding HMO or other licenses and any past insurance claims.
If everything checks out and you do decide to keep the current tenants, make sure that you contact them after the date of exchange to let them know how and where to pay their rent in future. If you intend to raise rental payments, you will need to give 2 months’ notice before this can come into effect.
Your conveyancing solicitor should also arrange for the transfer of the deposit – you must ensure that this is placed in a recognised government deposit scheme. Once everything is organised, let your new tenants know where their deposit has been placed.
Everything should now be set for a positive letting experience. With the right preparation and planning, your new investment should be a great success.