When making the decision to sell a property that you are currently renting out, there will be many considerations. Amongst them will be decisions surrounding the timing of the sale, especially if the property is not being offered with vacant possession. In this article, we look at the situation that arises when tenants are ‘in situ’ (also known as ‘sitting tenants’) in a property a landlord wishes to sell and what the implications might be.
What is a Sitting Tenant?
Simply put, a sitting tenant is defined as someone who is renting a property that their landlord as the owner has decided to sell. If this decision has happened during the fixed term of a contract or the tenancy is protected, the sitting tenant keeps the right to continue living in the property once the property has been sold until the end of the fixed term. The property would then have to be sold with a ‘tenant in situ’. Examples of where a protected tenancy might exist can be found here.
What Rights Does a Sitting Tenant Have?
- Assured Shorthold Tenancy – When purchasing a property with a sitting tenant, the new owner, as the landlord, takes on the existing Assured Shorthold Tenancy (AST) of the tenant. Both parties are bound by the terms of the original tenancy agreement. Only once the fixed term period of the AST has ended can the new landlord evict the tenant under a section 21 notice.
- Regulated Tenancy – If the tenant entered into the tenancy before 1989, they will benefit from the security of tenure under a Regulated Tenancy. Their rights are that they have a legal right to remain living at the property, in accordance with the Rent Act 1977. If the sitting tenant should die, under rights of succession, the tenancy might be able to then be passed on to another family member. A sitting tenant does not have the right to buy the property that they are renting, except if the property belongs to the local authority. However, this is not to say that a landlord cannot offer their tenant first refusal on the property should they decide to sell. A sitting tenant has the right to remain in the property, provided they continue to pay rent on time and keep to the terms of their agreement. The rent paid could be below the current market value and it is their right to remain paying this lower rental sum.
What Obligations Does a Sitting Tenant Have?
A sitting tenant must ensure that they pay their rent on time or they run the risk of invalidating their sitting tenant status. If a sitting tenant owes a landlord three or more month’s rent, then the landlord will be able to apply for an eviction order under the terms of the Rent Act 1977.
In relation to the property’s internal maintenance, the sitting tenant must ensure that reasonable repairs are undertaken.
The sitting tenant must also comply with the regulations that the original tenancy agreement details. This can include such clauses as no pets or ensuring that the garden stays maintained.
Again, if a sitting tenant does not follow these rules, they run the risk of losing their sitting tenant rights.
What Does ‘Sold with Sitting Tenant’ Mean?
If a property is offered for sale with the words ‘tenant/s in situ’, it means that it is being sold with a sitting tenant in place. This means that the tenant currently living at the property will remain living at the property whilst it is sold and afterwards under the terms of their tenancy. The purchaser of the property will then become the tenant’s new landlord. It is important to understand the terms of the tenancy agreement that the sitting tenant has before entering into a contract to buy the property.
How Does a Sitting Tenant Affect Property Value?
Properties that are offered with tenants in situ often sell for much less than those being sold with vacant possession.
It is often the case that a lender will be unwilling to mortgage a property that has a tenant in situ so financing the property then comes a question of whether a cash purchase is possible. This limits the pool of available purchasers which will inevitably drop the price of the property
Added to this smaller mortgage market, there are also issues around the number of people who would be willing to take on a purchase with an in-situ tenant. Typically, this would be restricted to people who already are, or are looking to become a landlord, but even then, the pool is limited as not all landlords would be willing to take on a new tenant under an agreement that they didn’t negotiate. As such, given the general lack of mortgage packages and the limited pool of purchasers, having a sitting tenant in a sale will lead to the value or the property being depressed.
Can A Tenant Be Removed from a Property I Wish to Sell?
When selling a property with a sitting tenant, a landlord is faced with a few courses of action:
- The first option is always to give the tenant first refusal to buy the property. If they accept then the problem is solved.
- Give notice to the tenant of the planned sale of the property but first check the terms of the tenancy agreement to see if the tenant can be given notice, especially if the tenancy is still in the fixed term. As detailed above, this may be possible if the tenancy is an AST, by issuing what is called a Section 21 Notice. This is not an option for regulated tenancies.
- Wait it out until the end of the tenancy agreement and then sell the property. A landlord could ask the tenant if they will leave so that the house can be sold, But this would be purely under a voluntary agreement and cannot be enforced.
Buying A House with a Sitting Tenant
When purchasing a property with a tenant in situ, the law covering England & Wales states that the new owner of the property (and therefore new landlord for the tenant) must take over the exact rights and obligations that the previous landlord had in relation to the tenant.
Firstly, the new landlord must contact the tenant/s to advise them of the change of landlord. Updated instructions should also be provided as to how rent should be paid. There is also a responsibility on the tenant to ensure that they have the new details as ignorance of these is not an excuse to miss rent payments.
The new landlord must transfer the arrangements that went along with the original deposit paid so that they are under their own name. It’s important to note that this is likely to involve a deposit protection scheme.
The new landlord must also inform the tenant if they transfer their deposit between schemes and provide the sitting tenant with full details. This is a legal requirement. They new landlord should also confirm with the transferring landlord that the right to rent checks have been carried out and evidence retained and whether any follow-up checks need to be conducted. Further information on Right to Rent checks for sitting tenants can be found on the Government website.
Selling a property with a sitting tenant can be complicated as there are additional complexities and considerations, it is highly advisable to seek the services of an experienced estate agent and solicitor when considering this.At Belvoir, we know that property is personal. If you are beginning your journey as a landlord, or well on the way with a growing portfolio, we are here to help each step of the way. We understand that you want a level of service that is professional, knowledgeable, and tailored to suit you. Find details of your local Belvoir office here to speak to one of our friendly, knowledgeable agents.