How to buy a property with a tenant in situ in the UK

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Introduction

In the UK, buying a property with a tenant in situ is considered a good thing for a lot of landlords. However, there are quite a few things to consider and you need to know what you’re doing.

What happens if you buy a house with a tenant in situ?

Buying a property with a tenant in situ is often seen as a riskier investment. As a result, a landlord can expect to buy the property for below market value.

Tenants living inside a house sold with them living there

What are the advantages of buying with a tenant in situ?

The biggest benefit lies in the fact you can start collecting rent the same month the property is purchased and you won’t have to worry about finding tenants yourself or contacting a letting agent to help fill your property like if you bought a new build property to rent out for instance.

In addition, when doing the correct due diligence on the property, you may find the reason there is a tenant in situ is that the tenant has been living there for years and taking good care of the property.

In these cases, buying a property with a tenant in situ is a good idea as it will be hassle-free for the landlord as they won’t have to find new tenants or hire a letting agent.

Things to be aware of when buying a property with tenants in situ

It might be the case that the tenant can’t be evicted when you buy a property with a tenant in situ. This could be due to the AST a tenant has signed lasting a long time and the new landlord adopting the terms of the agreement.

If this tenant is troublesome and they don’t take good care of the property or have a history of paying their rent late, you could be stuck with this tenant until you can evict them legally. It is commonplace to ask for the previous property owner’s bank statements to see if the tenant has been making late rent payments.

This is important because a tenant that affects your rental income may also cause a landlord to have late mortgage payments and therefore develop a bad relationship with their lender.

Consider investing in alternative investments or relying on your pension if you don’t want to take this risk.

Factoring this in before you buy a property is a good idea as a landlord may deem it essential to buy the property for below market value after it has been valuated to take on this additional risk.

Can I buy a property with a tenant in situ?

It is definitely possible to buy a property with a tenant in situ. If you are an experienced landlord, you may find this process easy to do and conduct your due diligence in the right manner. 

However, because of the commonality in the property industry for landlords to sell their property with a tenant in situ if the tenant is problematic, a lot of landlords choose to avoid buying properties in this situation altogether. They consider it not worth the additional risk.

What does “sold with tenant in situ” mean?

The term “sold with a tenant in situ” is used to describe a property that has completed a property purchase with a tenant actively living inside at the moment of sale who doesn’t need to be relocated.

Can you sell a property with a tenant in situ?

In some cases, it may be possible to sell a property while the tenant is still in situ. However, there are a few things you’ll need to take into account before doing so, as sellers will look at a property with a tenant in situ with added scrutiny.

Can you sell a house with a sitting tenant in the UK?

If you’re a landlord looking to sell your house with a sitting tenant there are a series of challenges you may face. Here they are and how you can get around them: 

Most importantly, the tenant isn’t legally obligated to allow access to the property for viewings and as a result, a tenant can cancel at the last minute or leave the property in a mess. This can make it hard to bring in new renters to the property.

If a tenant is very uncompliant, it’s likely you’ll have to buy the property with the tenant in situ, and wait for their tenancy to come to an end. Then evict them and focus on viewings and bringing in a new tenant.

You can make this process less stressful and lower risk by purchasing rent guarantee insurance if you think there’s a chance there will be a long time with no tenant in between. Allowing you to keep up with the costs of the property such as home insurance, stamp duty mortgage payments and electricity.

A stressed landlord dealing with a non-compliant tenant

The Pros and Cons of a Tenant in Situ

There are pros and cons to having a tenant in situ, and both landlords and lenders should be aware of them before making purchase decisions. It’s important to weigh up both sides carefully.

Pros

For one, a property bought with a tenant in situ is commonly advertised as a cheaper property.

Also, for landlords, having a tenant in situ can be beneficial because it removes the need to find new tenants and go through the process of screening them. It allows a landlord to adopt the previous income the old property owner was receiving without any additional work.

The landlord will also be able to receive an income from their property from the first available rental payment date. This is very convenient and ensures they are able to pay off their mortgage on time and other costs like home insurance. Whether that be a buy to let mortgage or another type.

Cons

However, there are some potential drawbacks as well. One is that it can be difficult to evict a tenant who is troublesome. They could be paying their rent late or causing anti-social behaviour or generally not taking care of the property due to the previous homeowner’s tenancy agreement.

This means the landlord has less control over what goes on in the property due to adopting a tenancy agreement they didn’t make. A landlord has to wait for a break clause in the agreement or for it to end to enforce their own rules.

Despite how happy the tenant or tenants seem living in the property or what they have told you from the previous landlord. You may still need to go through additional legal processes while setting up your property that previous landlords have neglected.

This may include mandatory PPM checks such as making sure there is a necessary property licence, there is an up-to-date EPC certificate and there has been a gas safety check in the last 12 months. 

Properties with tenants in situ are considered riskier investments for lenders as well as for landlords so some may refuse to finance your property purchase. You may also need to find a specialist solicitor to confirm you aren’t taking on excessive risk by buying a property with a tenant in situ and that risk you’re taking on is reasonable.

Tenants living in situ are under no legal obligation to provide house viewings to landlords for new tenants. So, as soon as you buy a property and take on your tenant, you’ll now be responsible for bringing in new tenants without the right to allow these tenants to come inside or clean up the property for viewing even if granted permission.

Finally, it is important to consider that if you are buying a property with a tenant who is the only one living in the house in a single let for example. A tenant missing rental income in this situation will have a bigger impact on the profitability of the property than a tenant missing rental payments in a 6-bed HMO or a large build to rent development with hundreds of tenants for example. 

While the landlord will still feel the effects, the impact will still be a lot less severe and evicting this troublesome tenant will not be as stressful if there are 5 other tenants paying rent. So it is important you evaluate risk on a case by case basis.

Can you get a buy-to-let mortgage with a tenant in situ?

If you’re a landlord who’s looking to expand your property portfolio, you may be wondering if you can get a buy-to-let mortgage with a tenant in situ. The good news is that, in most cases, you can – as long as the tenant is on time with their rent and there’s no damage to the property. A landlord should be able to give you a mortgage if you can prove it’s not a risky investment.

Mortgage offered to a landlord with tenant in situ

Be sure to have other documents together like having a good credit score, proof of rental income and you have a sizeable deposit saved to improve your chances of approval. If your house purchase is a second home this will also improve your chances of approval.

Is the Property With a Tenant in Situ Profitable?

A tenant living in situ can work out well and over time the property may even appreciate in value and money is able to be pulled out of the deal on a mortgage. This is known as buying a property with no money. Buying a property with no money certainly isn’t all doom and gloom.

If you have any concerns that buying a property with a tenant in situ will cause rent delays, damages to the property or other problems that may affect other tenants in the future, weigh up the risk carefully. 

Even if you think you can make a profit, it may be you find it isn’t worth the additional stress. Each investor and landlord has a different level of risk tolerance as well as how much involvement they want to have in dealing with tenants so it is best to make a decision based on your preferences as well as looking at profitability.

What happens to a tenant’s deposit if sold in situ?

How does it work if a property is being bought with a tenant in situ but the tenant has paid a deposit to the previous landlord?

Firstly, the tenant and the previous owner of the property will need to determine if the deposit is available to be refunded or not based on the agreement they have in place.

If the deposit can be refunded but the new landlord also requires a deposit, it can be agreed between the tenant and the seller to transfer the deposit to the new landlord.

This cost can be included in the property price or transferred separately. However, it is important this is all recorded and there are certain situations like buying using a property auction where this becomes complicated. 

As a new landlord, you have to make sure that you get the tenant to sign a new tenancy agreement with the details of the deposit once their agreement expires.

What rights does a tenant in situ have?

Under the contract, if a tenant has signed an assured tenancy shorthold (AST), they will have the legal right to remain in the property until the agreement is over if they’re still complying with the terms of the agreement such as paying rent to maintain the rental yield or not having caused damage or anti-social behaviour in the property.

However, if there are break clauses in the contract of an AST, this gives the landlord a right to evict a tenant by repossessing a property.

Can you evict a tenant in situ?

Under section 21 of the housing act 1988, you can legally evict a tenant if you give them two months’ notice. This notice has to be sent to the tenant after a break clause or the end of the tenancy agreement.

A tenant in situ packing after being evicted

If you have a tenant in situ who has signed a previous agreement with the previous owner of the property, you will have to abide by the rules of the agreement they set in place until you can get the tenant to sign your own Assured Tenancy Shorthold agreement (AST).

Under section 8 of the same act, you may also choose to evict a tenant if they’re causing damage to your property, refusing to pay rent or causing anti-social behaviour which is affecting the well-being of other tenants or neighbours.

After you have decided you have reasonable evidence to evict a tenant, you’ll then send them a section 21 or 8 notice and the date on which you choose to repossess your property. Depending on the tenancy agreement in place, this date can be anywhere from two weeks to two months in the future.

Can you remove a tenant in situ?

The process for evicting a tenant can very much be an amicable arrangement with them accepting the terms of the agreement and moving out within a set time.

However, if you have a tenant in situ and you have informed them you will repossess the property under section 8 or 21 and they still haven’t moved out by the agreed date, you then have the right to breach the property with a spare set of keys.

However, it is not worth getting physical with tenants if they are being uncompliant in which case you may have to get legal help to physically remove them. This involves getting a court order for a bailiff to physically remove them and their belongings. For details on how this process works click here.

Viewing the property with a tenant in situ

A tenant in situ is under no legal obligation in order to provide a landlord with a viewing. However, if you are on good terms with your tenant and you have discussed what would happen with your tenant if they were to get evicted or move out of the property, you could get viewing to happen under a verbal agreement.

You could also include a viewing clause in your tenancy agreement. However, the tenant is under no legal obligation to agree to it as it is difficult to get approval for this under the law.

Organising Viewings With a Tenant in Situ

If your tenant is okay with you entering the property with members of the public for viewings it is polite and good practice to give reasonable notice. First of all, the tenant should be given a time period in which viewings can take place and a notice a few weeks in advance of this.

Secondly, giving 24 hours notice before the exact time and date of viewing would also be polite. Not only is this good for the tenant’s welfare but it too gives the tenant time to clean and organise their space to give the best impression to future dwellers. 

Starting off on the Right Foot With the Tenant in Situ

There are multiple investigations you can conduct as a landlord buying a property with a tenant in situ. These may be similar to the checks you’ll conduct if you were to look for a new tenant such as credit checks, previous landlord checks and employment checks.

      A landlord shaking hands with a tenant in situ

      You may be also able to speak to tenants to see what their tenancy is likely to look like by asking what their future plans are and if there were any previous verbal agreements

      In summary

      Buying a property with a tenant in situ seems straightforward when looking at it initially. However, there are a lot of legal terms and difficulties associated with the transfer of the owner of the property.

      Whether to buy a property with a tenant in situ is entirely up to the risk a landlord wants to take on and should definitely be considered on a case-by-case basis. A good tenant will simply make a landlord’s life easier whereas a bad tenant can be the difference between making a profit on property investment or not. 

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      donnell-bailey

      Donnell Bailey

      Property expert

      Donnell is a property expert focusing on the property market, he looks at a combination of legislation, information from property managers, letting agents and market trends to produce information to help landlords.

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