Purchasing a Property With Tenants in Situ
When purchasing a buy-to-let property, it’s not uncommon for it to come with an existing resident. Purchasing with a tenant in situ can be advantageous, but there are also several things you should be aware of before proceeding.
These can be fairly high risk transactions for a buyer- usually there is a reason a property has been put into auction. A problematic tenant in situ can often be one such reason.
Technically a seller should be upfront about the property’s current use and the type of tenancy agreement in place. Equally, you must undertake necessary enquiries to assure yourself that having a tenant in situ is the type of legal responsibility you want to take over. Of course the seller may say one thing about the tenant’s rights and obligation, but the tenant may say something else entirely.
Our specialist commercial and property litigation team handle claims and disputes nationally arising out of auction purchases. These can include professional negligence claims, claims for breach of contract and/or misrepresentation and, the focus of this post, claims relating to tenants left in situ who you then need to deal with as the buyer.
In this article, we explain the meaning of tenant in situ, and some of the factors to consider when buying this type of property. For further guidance, contact Helix Law for specialist tenancy and property litigation advice.
What Does “Tenant in Situ” Mean?
A tenant in situ is someone who is renting a property that their landlord is selling to a new buyer. The tenant remains in place even after the sale, so the new buyer effectively takes over their tenancy agreement and becomes the new landlord. This arrangement can arise for various reasons, most commonly because the tenancy term is yet to expire or the person renting has a good relationship with their landlord, who agrees not to evict them.
From a seller’s point of view, marketing a property with an existing tenant can attract potential buyers as it demonstrates the income the property can generate. . For landlords wishing to exit the buy-to-let market quickly, it’s often the ideal method of selling, enabling them to get out as quickly as possible. As a buyer it can be said there are advantages such as (historically) being able to buy more cheaply (possibly), but there are also additional risks you should consider before taking this approach.
What Are the Advantages of Buying a Property With a Tenant in Situ?
Lower cost
The vast majority of property buyers want to live in the property they buy. The market for a tenanted property is therefore smaller. As the buyers market is typically far smaller, it can be harder to sell and for a buyer you can often purchase this type of property at a lower price. Even if the landlord markets it at a higher price, there’s usually more room for negotiation and discounts.
Immediate rental income
As the new property owner, you will (or should) be taking on an income generating asset, and so in theory you won’t have to spend time and money securing a new tenant. You can also rely on steady payments for as long as the tenancy has left.
Shorter vacant or void periods
Keeping the existing tenant in place means the building won’t suffer from an extended period of being left empty.
Easier financing
When reviewing a potential purchaser’s mortgage application, lenders will likely consider the rental income history a positive factor. Because of the tenant in situ, you may be able to borrow more or receive a quicker mortgage offer.
Shared maintenance responsibilities
The tenant will have specific responsibilities to keep the property in good condition and to comply with any other duties in their tenancy agreement. It places fewer obligations on you as the landlord, leading to saved costs.
What To Be Aware of With Tenants in Situ
Licencing, Planning and Freehold Permissions and Consents
Some private properties require specific licences before a landlord can let them out. For example, a house in multiple occupation (HMO) must have an HMO licence. These are a legal obligation, so you should check this carefully and prepare to apply for the relevant licence if necessary.
Tenancy agreement and rights
It’s vital to check the terms of the existing tenancy agreement before proceeding with the purchase. This contract will detail how much rent is paid and when, each party’s responsibilities, and the duration of the occupancy. Understanding these terms means you know what to expect from taking over the agreement.
Assessing condition
As someone will live there throughout the sale process, arranging viewings to check the property’s condition and conduct surveys can be more challenging. However, these assessments remain crucial, so you must inspect the premises thoroughly before proceeding.
Rent payment history
Simply taking over the previous owner’s rental income may sound ideal, but it will only be worth your time and money if the tenant pays. Therefore, you should check their history of payments with the current landlord to assure yourself they are reliable. Usually there will be a reason the vendor is selling.
It’s also advisable to conduct a credit check on them to identify any future issues with their ability to pay, as eviction can be a lengthy and costly process especially when you are not receiving the rental income.
Deposit registration and transfer
Ensure the vendor has dealt with all compliance requirements thoroughly and properly. If, for example, the deposit has not been registered, you might be buying a risk of a tenant claim for 3x the deposit + the deposit itself and the tenant’s legal costs. You might not be able to evict the tenant. There is a mechanism for the current owner to transfer the tenant’s deposit to you upon completion of your purchase. You should hold the funds in a government-approved deposit protection scheme, which you may need to set up yourself if it is not already in place.
Safety checks and EPCs
You will need to check whether the property has up-to-date fire and gas safety checks and Energy Performance Certificates (EPCs). These are legal requirements, and you may have to spend additional time and money rectifying this if you only discover issues after your purchase.
Frequently Asked Questions
Is It a Good Idea To Buy a House With a Tenant in Situ?
There are risks in this approach and you should obtain independent legal advice from conveyancers who should advise you on all the above and more, as the content of an auction pack before you bid or buy. Risks should be identified before you go ahead.
Buying a house with a tenant in situ can be highly beneficial if you’re willing to accept the risks that come with the potential upside. Many vendors will not want to deal with the hassle of a difficult or non paying tenant. You might be prepared to take that cost and risk on, pricing those costs into the purchase price. The danger is where you are taking on risks that you’ve not fully considered or are not aware of, or where you make assumptions. There are tenancies that cannot be terminated unless very strict criteria apply for example- such as assured tenants or rent act protected tenants. The type of tenancy and detail of the occupier is therefore essential to assess so you can ensure you’re able to execute your plans for the property if you buy it. Ensure you fully understand the implications of your purchase before proceeding; make the necessary enquiries and speak to a property or conveyancing solicitor who can provide further guidance. This is not work that Helix complete.
Final Thoughts
As specialist litigation solicitors we can assist after you have purchased a property and where you have encountered a problem; perhaps you need to remove the tenant in situ or there is some other dispute such as non payment of rent or disrepair, or perhaps you received negligent advice in the purchase and it is only now that its becoming apparent you cannot do what you want and intended to do. Our specialist property litigation team would love to assist you in this context. Contact Helix Law today for further advice.
