Selling a House with Sitting Tenants
The Ultimate Guide
Our latest guide looks at the in’s and out’s of selling a house with sitting tenants in situ. First we explore the meaning of a sitting tenant. We then look at the key differences between tenancy agreements and how these could affect your planned sale. Next we discuss your rights as a landlord or tenant during the sale. Finally, we look at the pro’s and con’s of the various routes to selling a rental property with tenants.
If after reading our guide you still have questions, please feel free to post these at the foot of this page and we’ll be more than happy to help.
Quick Page Navigation
- What is a sitting tenant?
- How legal differences between tenancy agreements could affect your sale
- Selling a property with tenants in situ
- Evicting tenants and selling with vacant possession
- So, what are the options for selling a rented property with tenants in situ?
- Should I sell my buy to let?
- How much notice does a landlord have to give a tenant to move out?
- How much does a sitting tenant devalue a property?
- What happens when you sell a buy to let property?
- Can a sitting tenant buy the property?
- What happens if my landlord wants to sell the property?
- What are my rights as a tenant if my landlord wants to sell?
- Can I refuse viewings as a tenant?
What is a sitting tenant?
Put simply, a ‘sitting tenant’ is someone who lives in situ at the point a landlord sells and transfers ownership of a property to another landlord. A sitting tenant could be one that either always pays their rent on time or a tenant not paying rent and falling into arrears. The important point is often it will be your choice over whether the tenant stays in the property during a sale of it or leaves beforehand. There are however key differences between types of tenancy agreement that can make selling a house with sitting tenants complicated. And it’s important to ensure you understand these when considering how best to proceed.
How legal differences between tenancy agreements could affect your sale
As you consider selling a property with tenants, there are key legal differences between the different types of tenancy agreement in use today. And so knowing which type of agreement you have in place will be vital to your success in selling quickly. Here we explain the differences between the types of agreements.
Assured shorthold tenancy (AST)
The assured shorthold tenancy agreement came into power on 15 January 1989 under the Housing Act 1988. It was put in place as a means of providing landlords and mortgage lenders with greater levels of control. It was felt that for too long, tenants in situ had the upperhand in dictating when a tenancy could end. Today the assured shorthold tenancy is the most widely used agreement for letting residential property in England and Wales. The AST agreement made things easier for both lender landlord.
The way an assured shorthold agreement works is fairly simple. Under this type of agreement there is an agreed intial ‘fixed term’ that is typically set for 6 or 12 months. Crucially, after the fixed term has passed you are able to provide just two months notice to regain possession of your property.
Once the fixed term period has passed the agreement automatically rolls into what’s commonly called a ‘periodic tenancy’. At this point there’s no need to draw up a new tenancy agreement. The periodic tenancy remains legally vaild up until the point there’s a material change in rental terms such as a rent increase (or decrease). If there’s been a change in the rental sum you’ll need to demonstrate this. You can use either a deed of variation or a new assured shorthold tenancy agreement to make this legally valid.
Selling a property with tenants under an assured shorthold tenancy agreement is without doubt the most straightforward of all tenancy types. The key difference is an assured shorthold agreement allows you to bring a tenancy to an end swiftly by serving a Section 21 Notice. This means as a landlord you’re able to sell your property in just a matter of weeks or months. Selling an investment property with an AST is a fairly simple matter of following a prescribed legal process and notifying your tenants of your plans to sell. You could also consider using this type of notice if you have tenants not paying rent and you are thinking of making them a financial offer to leave your property.
However, in order to serve your tenants with a valid two months notice period, you’ll need to have registered (and paid across) any deposit into a government approved tenants deposit scheme. This will need to have been registered within just 30 days of the original tenancy starting as set out in tenancy law and the money paid across. If you didn’t register the tenants deposit this could result in very significant delays as your case could end up in court. Should this happen, judges now expect to see that all due processes have been adhered to by landlords when the tenancy agreement was originally drawn up. This would also involve demonstrating the property had valid gas, electrical and carbon monoxide safety certificates at the start of the tenancy.
Assured tenancy agreements were only written during 1989 – 1997. It’s highly unlikely that you’ll have an assured tenancy for your tenants in situ as these were only really used by the likes of housing associations to provide tenants with greater long-term tenancy rights. This could include providing the tenant with the right to live in the property for the rest of their life. An assured tenancy also helps ensure a tenant cannot be evicted without reasonable grounds for unwanted behaviour. We’d advise you to double check you don’t have an assured tenancy as it could spell real problems in trying to achieve a smooth sale of your rental property.
Non-assured shorthold tenancy
Non-assured tenancy agreements are used for slightly unusual situations when a tenancy doesn’t fall into the legal framework of an assured shorthold tenancy. An example would be the property is not the tenants main residence or you yourself live in the same property as your tenant (and don’t share any facilities). Another example would be that the annual rent falls below the minimum £250 requirement for an assured tenancy.
Under a non-assured tenancy there’s no legal requirement to register a deposit if one was ever paid. Also there’s no need to serve a Section 21 or 8 notice to bring the tenancy to an end. Instead you can simply insist on the tenant leaving at the end of the fixed term period.
Regulated (or protected, or rent act) tenancy
The most onerous of the tenancy types, a regulated tenancy provides a tenant with greater sitting tenants rights. Regulated tenancies were used only up to 1989 prior to the assured shorthold tenancy agreement coming into place.
The main difference is that under a regulated tenancy sitting tenants have the right to stay put until such point as they pass away. In other words, under a regulated tenancy, the landlord cannot simply serve notice on a tenant to vacate a property. This makes it very difficult to sell on the rented property as most buyers want the freedom to be able to sell the property at some point in future.
Also, under a regulated tenancy the tenant is able to pass their tenancy onto a family member with the same tenants rights. And so regulated tenancies are only ideal if you know for sure that you never plan to sell a rented property.
Added to this most lenders won’t lend against a property with a regulated tenancy as the’ll want to be sure they can regain possession of the property in any event.
As a result, selling a property with tenants under a regulated tenancy is always going to be more difficult than with any other form of tenancy agreement. But this is still perfectly possible.
Selling a property with tenants in situ
There are just two ways of selling a tenanted property. While this may sound straightforward there are many things to consider.
Selling with tenants in situ
Provided you’re able to find another landlord wanting to buy a rental property with tenants in situ this could be a great way to sell. Professional landlords often look for a way to buy tenanted properties that already have a tenancy in place. This can help avoid the extra costs of having to find a new tenant while also having the property empty and a mortgage having to be paid. That is provided the tenant has always paid their rent and continues to look after the property well.
However, landlord demand can fluctuate wildly as a result of mortgage lending and ever-changing government legislation. In recent years there’s been a large increase in the number of landlords that have decided to retire or sell up. Depending on timing, this backdrop could affect your ability to sell your tenanted property within a reasonable timescale.
Evicting tenants and selling with vacant possession
Provided you’re able to obtain vacant possession, this is often seen as the best way to sell a property. Effectively it means your property can be purchased by anybody looking for a place they can call home. This could be a first time homebuyer or even a seasoned landlord. Most importantly, by selling with vacant possession you’ll be able to prepare your property and control it’s appearance throughout the entire marketing period. You won’t have to worry about tenants leaving the property untidy or worst still – messy. This could be the difference between selling your property quickly or it lingering on the open market for months on end.
Getting organised for a sale
Getting to the point of marketing your property for sale could take some time if you’re not prepared to put the legwork in. It’s incredibly important that you have a good relationship with your tenants. First you’ll need to ensure that you have a current and signed tenancy agreement that could stand up in a court of law should it be necessary. This is in case your tenants decide to make things difficult by not leaving the property. If this does happen you’ll need to ensure that all of the prescribed documents were served correctly at the start of the tenancy. This will include a valid gas safety certificate, electrical safety certificate and energy performance certificate.
Aside from these you’ll also have to demonstrate that any deposit was registered within a government approved scheme on time. To top this off you’ll also need to demonstrate that your tenants signed for having received all of the documents.
So, what are the options for selling a rented property with tenants in situ?
Estate agent sale
Selling via an estate may sound straightforward until you realise that not everybody wants to purchase a buy to let property with sitting tenants. The reality is that the vast majority of people are simply looking to buy a property to live in themselves. This means that the pool of willing buyers is often reduced meaning only a handful are looking for an investment property. In our experience when a landlord instructs a high street agent to sell their rental property with tenants in situ they often find it very slow or even impossible to sell. This is because sitting tenants rights provide some protection from a qucik eviction. If you do decide to sell via an estate agent be careful to ensure that your chosen agent has experience in selling tenanted buy to let houses.
- Some agents have landlords registered looking to buy rental properties
- Provided there is strong buyer demand, you could get a better price for your property
- With hard-earned experience, estate agents can often provide accurate valuations
- You remain in control from receiving the memorandum of sale right through to exchange of contracts. This means you are free to withdraw from the sale at any time should you have a change of heart.
- Selling via an estate agent can prove slow to find the perfect landlord buyer
- Once a sale is agreed it can take an average of 3 – 6 months to complete the sale
- There is always the risk that a buyer will pull out within any part of the property chain
- Most buyers are looking to buy a vacant property making it difficult to find the perfect buyer
Selling a rental property at auction
Selling a rental property via an auction is perhaps the most exciting route of all. But with this excitement comes a great deal of uncertainty. And so it’s not for the feint hearted. All too often, success in an auction room all depends on who turns up on the day of the sale. The more buyers that attend, the better the chance is of selling a tenanted property for a good price.
- Auction houses tend to draw in good numbers of landlords looking to add to their existing property portfolio
- Once the hammer falls the sale is legally binding for both buyer and seller
- You set the reserve sale price meaning your property cannot be sold for less
- Sometimes it’s possible to sell for more than you’d planned. It just depends who’s in the auction room on the day
- Sale fees are generally higher at approximately 2.5% of the eventual sale price
- Selling via a house auction is not guaranteed. You could find that having waited a couple of months for auction day to arrive that you don’t find a buyer and are back to ‘square one’.
- Once the hammer falls you are legally obliged to sell your tenanted rental property with no opportunity to withdraw from the sale
Selling a property with tenants in situ to a home buying company
With a raft of government legislation and taxation changes it’s easy to see why you may be looking for a company who buys tenanted properties. After all, the idea of buying and running a buy to let portfolio has lost it’s appeal for many.
This is where companies that buy tenanted properties can really help. Selling an investment property with tenants in situ is now relatively straightforward. You can now sell your property in just a matter of days or weeks via a professional house buying company. This is done by simply selling for a trade price (cash) in return for a guaranteed quick sale. This works in the same way as selling your car via one of the we buy any car websites. Provided you choose well, your property buying company will help explain to your tenants how nothing will change apart from the ownership of the property.
- No estate agent, valuation or solicitor’s fees at any stage of the sale
- No need to serve notice to your tenants as they are free to stay
- If you have tenants not paying rent, a property buying company can still buy your rental property
- Greater certainty of a sale completing in just 7 days or 4 weeks (depending on situation)
- You can sell your property regardless of condition
- Real support in explaining the sale process to your tenants with a minimum of disruption
- A reduced price for your property in return for a guaranteed sale
Should I sell my buy to let?
Selling an investment property is a decision only you can make as we’re not allowed to give financial advice. What we do know is that we’re now hearing from landlords in increasing numbers looking to sell either an individual rental property or a property portfolio. Most of this increase is as a direct result of government imposed restrictions on landords who are no longer allowed to offset mortgage interest payments as a valid business cost. It’s now clear that for higher-rate tax payers, holding buy to let properties on mortgages, the numbers no longer work. Unless of course you’re able to hold on purely for capital growth which is currently going very well indeed.
We’d simply say that you should consider what else you could do with any surplus monies that you would receive after a sale and having paid any capital gains tax that falls due. If you can’t think of a better way of spending or investing any surplus it may be worthwhile leaving your investment where it is for the long term. That is of course providing it is not causing you undue financial pressure.
How much notice does a landlord have to give a tenant to move out?
As discussed earlier, up until the Covid-19 pandemic struck, landlords simply had to serve two month’s notice under a valid Section 21 Notice. However, as a result of Covid-19, the government brought new legislation into place. This was called the ‘Tenant Eviction Ban’ and overnight increased sitting tenants rights. Initially this meant landlords had to give a minimum 6 month’s notice before they could then apply to courts for possession should their tenants not leave.
In June 2021 the minimum notice period was reduced to 4 months as the pandemic eased. And subsequently this was reduced to the standard 2 month notice period. As a result, courts now have a long backlog of possession cases to process and it’s predicted that it could be many months before a landlord’s case could be heard. This has made the process of gaining vacant possession of a rented property much harder than previous resulting in many landlords looking to sell with tenants in situ.
How much does a sitting tenant devalue a property?
This is a tough question and one that requires careful consideration. Ultimately, it’s difficult to quantify the effect sitting tenants have on working out the value of your rental property. There is a big difference between a sitting tenant signed under an assured shorthold tenancy and another signed under a regulated tenancy. And the effect these could have on a property’s overall value could be huge.
As we pointed out earlier, if you have tenants signed under an assured shorthold agreement this is going to make selling relatively easy. In most cases, buyers will insist on the landlord serving notice for the current tenant to leave the property prior to completion of sale. They will then want to make thorough checks (perhaps in person) on the property before completing on the sale to ensure they do in fact have vacant possession.
If you have a tenant living under a regulated tenancy agreement this is going to make selling much more difficult as the tenant will have life-long rights to the property.
As a guide, selling a house with sitting tenants on an assured shorthold tenancy agreement could devalue your property by 20 – 25%. Conversely, selling with a sitting tenant under a regulated tenancy could reduce the value of your property by as much as 30 – 40%. This is because any buyer is taking a calculated risk in how long it may be before they obtain possession of the property and are able to sell it on. On top of this, most lenders won’t lend to a buyer wanting to buy a rental property with a regulated tenancy.
However, some experienced home buying companies will pay more as they can see the possible upside when the tenant finally decides to move on or unfortunately passes away. The bottom line is that to sell a rental property with a regulated tenant you’ll often need to find either a cash buyer or sell to a company that buys houses as long-term investments.
Difficulties in selling a property with tenants in situ
Often it’s the effect sitting tenants can have during viewings that matters most. However, handled right, this needn’t be the nightmare that you might be expecting.
From our experience the main issues with selling a tenanted property boil down to how good a relationship you have with your tenants. For example, if you’ve always been difficult for your tenants to get hold of they’ll often resent you selling the property. And perhaps they’ll choose to ignore you when the time comes that you need their help. Conversely, if you’ve always been easy to reach and kept on top of maintenance issues when they were reported you’ll probably find your tenants are more than willing to help. They may even go out of their way to help ensure your property is always presentable in the run up to viewings.
What happens when you sell a buy to let property?
Selling a buy to let property is much the same as selling any other residential property. The only real difference is if you have the complication of sitting tenants at the same time. Provided you have an assured shorthold tenancy in place this should be relatively straightforward. If this is the case it’ll mean you having to give serious consideration as to how you’re going to tell your tenants that you intend to sell the property. You’ll also want to be sure that you have a sound and committed buyer in place before serving notice on your tenants. This is the best way to avoid having an empty property and with no rent coming in.
All of this is best done by being honest and open from the outset explaining your reasons for selling your rented property. You may even find during this conversation that your tenant is interested in buying your property. This could be the perfect answer for both sides saving a great deal of time in having to employ an estate agent and conduct viewings. And you could save £1,000’s in estate agent fees too!
Can a sitting tenant buy the property?
This is certainly possible and happens surprising regularly. If you are considering selling your rental property with tenants in situ we’d always recommend that you do first offer the sale to them. Provided your tenants are able to put together a deposit and evidence a mortgage in principle this could be your best route to sell with the minimum of hassle for all. You’ll also benefit from no estate agent fees.
What’s more, your tenants will have already settled in the property and will be more than willing to ensure your sale runs smoothly. For them there would be no change and they may even benefit from a reduction in their monthly outgoings as any mortgage is likely to cost less than the monthly rent.
Sitting tenants rights and advice
What happens if my landlord wants to sell the property?
In reality should your landlord decide to sell the property there is very little that you can do. Unfortunately this is always the risk when renting. At this point it’s important to know the full position on sitting tenants rights.
Provided the property is in a reasonable condition and has been marketed at a fair price it’s often just a matter of time before a sale is agreed. If your landlord does decide to sell (and you have an assured shorthold tenancy agreement), they will need to serve you with a valid Section 21 notice to vacate the property. This notice would typically give you a minimum two month’s notice to find alternative accommodation.
If you are in a position to buy your landlord’s property there is no harm in asking how much they are looking to sell for. You may find this the best solution as it’ll avoid you having to find an alternative property and arranging another house move. You may even be able to negotiate a small discount on the purchase price as your landlord will save money not having to use an estate agent.
What are my rights as a tenant if my landlord wants to sell?
As a paying tenant you have a number of tenancy rights should your landlord decide to sell. However, your rights as a tenant will vary depending on the type of tenancy agreement you hold.
Rights as a tenant under an assured shorthold tenancy
If you have signed one of the most commonly used agreements called an ‘assured shorthold tenancy’, this will mean two things.
Firstly, you have full tenancy rights to remain in the property for the minimum duration of the intial ‘fixed term’ period. This is typically the first 6 or 12 months as stated on the first page of your tenancy agreement. Believe it or not, the fixed term can run from just 6 months right up to a legal maximum of 7 years. For this reason alone it’s worth checking the fixed term stated within your tenancy agreement.
During the fixed term, your landlord cannot serve notice on you to leave the property. Should your landlord be looking to sell their investment property immediately upon you starting the tenancy, a sale cannot be completed during this time. Once the fixed term has expired, your landlord will have to provide a minimum 2 months written notice by way of a Section 21 or Section 8 notice for you to vacate the property.
Secondly, your landlord has to give you a minimum 24 hour’s notice of any intended visit to the property at any point during your tenancy. This includes any person needing to visit to carry out maintenance works in the run up to selling or indeed viewings. Under the terms of your tenancy agreement you also have the tenancy rights to quiet and peaceful enjoyment of the property. This means that neither your landlord nor anybody else can simply turn up at your property unannounced.
Aside from these two main rights as a tenant unfortunately you won’t be able to hold back the eventual sale of the property. But you will have time to plan your next move.
Rights as a tenant under a regulated tenancy
If you have an older style ‘regulated tenancy’ (dated before 15 January 1989), your landlord cannot force you out of your property. Instead, you have full protection from this. You will almost definitely also have the tenancy rights to pass the tenancy on to a family member under the same rental terms.
Ultimately, your landlord can still sell the property but only to another landlord with yourself remaining as the regulated and fully protected tenant.
Can I refuse viewings as a tenant?
You are able to refuse viewings on the grounds of an illness or other pressing issue. This forms part of your sitting tenants rights. However, it will have been written into your tenancy agreement that your landlord has the right to visit the property provided they give you a minimum 24 hour’s notice. This means that eventually you will have to provide access and for this reason we’d advise against making it difficult for your landlord.
We know that selling a house with sitting tenants is never going to be straightforward. However, by taking the time to fully understand your legal rights and the key differences between tenancy agreements this can make things clearer.