While it used to be the norm for landlords to give tenants notice to leave when they wanted to sell their rental property, it has become increasingly common for Buy to Let investments to be sold with tenants in situ.
In many cases, this makes sense, assuming the most likely buyer is another landlord. If the current owner has a good relationship with their tenants, they may not want to evict them; the tenancy may be within a fixed term, or they might not want to have to wait until the property is vacant to cash in their investment.
The big benefit of selling with sitting tenants, is the existing landlord can continue to receive rental income right up until the sale completes.
Benefits of buying with a sitting tenant
In the best-case scenario, you would be able to buy at below the property’s true market value, start receiving revenue from the day you take ownership and inherit a good tenant who will continue to look after your investment and always pay the full rent on time.
In addition, assuming the property is legally compliant, and the previous landlord kept up to date with maintenance and general property condition/décor, you can avoid the immediate financial outlay that usually comes with getting a ‘standard’ property ready to rent, meaning your initial capital investment requirement could be lower.
However, that is the ideal situation - which isn’t guaranteed! - and there are several things you need to know, check and do if you want to move ahead with this type of purchase, including:
- Find out why the landlord is selling. Although your solicitor/conveyancer will carry out checks on the tenant and tenancy, it’s worth speaking directly to both the selling agent and the current landlord to find out their reasons for selling. Make sure it’s not because there are any problems with the property or tenants, or issues such as local licensing or problems with demand.
- Ask if you can meet the tenants. Having a good relationship with tenants is one of the keys to a successful let and, in this case, meeting the tenants has two benefits. Firstly, you’ll be able to get a feel for what they’re like and can ask them any questions you might have, such as how long they’re planning to stay in the property. And secondly, they may be apprehensive or nervous about having a new landlord, so you can introduce yourself properly and reassure them that their home is secure.
- Check the property is currently legally let. That includes:
- Are the Energy Performance Certificate (EPC), gas safety certificate and Electrical Installation Condition Reports (EICR) all current?
- Are there the right number of working smoke alarms and a carbon monoxide detector?
- If the property is furnished, do all soft/upholstered furnishings 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?
- Have an appropriate survey. With any purchase, it’s always important to have your own independent survey carried out, but if a home has been rented out over time and maintenance/repair work has been done, you need to be sure it wasn’t just ‘patching’, covering up potentially more serious issues. As a minimum, we would suggest you get a RICS Level 2 Home Survey or RPSA Home Condition Survey, and if you have any concerns at all, it’s worth paying for RICS Level 3 or the RPSA full Building Survey.
- Use an experienced legal professional. Properties are usually sold with vacant possession, so the purchase contract will need to be tailored to the situation, and you should use a solicitor or conveyancer who is experienced in handling this kind of transaction. They will make extra checks, such as asking for proof of rental payments and carrying out up-to-date referencing and credit checks on the tenants.
- Work with a specialist mortgage broker. Because the vast majority of Buy to Let products are broker-only deals, it’s always advisable to work with someone who can access multiple lenders to get you the most appropriate product. And when buying with a sitting tenant, it’s even more important because lenders consider this a higher-risk purchase, and many are reluctant to offer finance. An experienced broker, like our partner Embrace Financial Services, can help you find a specialist lender – but be aware that you might need to put down a higher deposit than you would for a vacant property.
- Provide the tenant with your contact details. In order for any future court action you might take against your tenant to be enforceable, they must have been formally informed of your name and address. As 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, informing the sitting tenant that the property has a new legal owner, and stating the address at which notices can be served.
Section 3 of the Landlord & Tenant Act 1985 also makes it clear 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. The easiest way to comply is therefore to include this information along with the section 48 notice.
If you don’t do this, any rent payable under the tenancy agreement won’t be ‘lawfully due’, and you won’t have the legal right to claim for things like rent arrears, damage or service charges until you have served a section 48 notice.
If you are looking for an existing rental property to buy or you have any questions about buying with a sitting tenant, you can find the contact details for your local branch here and our local experts are happy to help.
Most Buy to Let Mortgages are not regulated by the Financial Conduct Authority
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