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Selling A Property With Tenants In London

By Maurice Shasha  //  Mon 5th February 2024
If you're a landlord with a property in central London looking to reduce your portfolio, you may consider selling the property with sitting tenants - or selling with tenants in situ as it's known.
Selling a Property With Tenants

Doing this has pros and cons, and it's worth understanding your options before you start. We look at the main things you need to consider. 

 

Your options when selling a tenanted property 

You have two main options when selling a rental property with tenants:

 
 1. Ask your tenants to leave the property and sell it with vacant possession

As long as your tenants are no longer in the fixed term of their tenancy, you can serve them notice to vacate the property using Section 21 of the Housing Act 1988. 

If everything goes to plan, you will have an empty property to sell to whoever you like. However, selling homes can take some time and you will need to factor in the loss of rent during the sales process.

 

 2. Sell the property with tenants in situ

 

You can also sell the property to another landlord while it is occupied by your tenants. This will limit the market to buy-to-let landlords. However, it means there will be no loss of rental income while the sale goes through - a benefit for you and the prospective buyer. 

 

Another option is to sell to your tenants, if they like the home and are able to buy.

 

Do you actually want to sell a tenanted property? 

 

While things may go smoothly, selling property with tenants has potential pitfalls, so consider carefully why you want to sell and whether this is the right time. 

  

Selling with tenants in situ - points to consider

 

Before deciding whether selling a tenanted property is the right choice for you, these are some things to consider: 

 

Market conditions  

Review the current market conditions to decide whether now is the right time to sell. It may be better to wait until house prices increase when the market fluctuates. You can check the recent trends on sold house prices or ask your estate agent for information about the market conditions. 

Demand for tenanted properties

You should also research whether there is demand for tenanted properties in the area. If there is little demand for tenanted properties, you may struggle to find a landlord buyer with tenants in situ. If this is the case, you must start proceedings to evict tenants. The Renters Reform Bill (RRB) is expected to be introduced by the end of 2024, which will change the eviction process, so you have to stay updated with the latest progress in the RRB. 

Covering the mortgage if tenants leave  

Once your tenant has been informed that you are selling the property, they may decide to find a new home rather than waiting for the sale to go through. If you sell the house with tenants in situ, they are more likely to stay on and pay the rent. Suppose you find yourself in a position where the tenants move out, and it takes several months for the property sale to complete. In that case, you'll need to consider if you can afford the intervening mortgage payments.

Negotiating viewings  

Another essential factor is how viable it will be to conduct viewings while you have a tenant in situ. If you have a good relationship with your tenants, they are more likely to accommodate house viewings. If your relationship isn't friendly, you'll probably find it challenging to arrange viewings before they move out. 

Reasons for selling

If you want to sell your property because it's not profitable enough, or if you've had trouble with tenants, passing the problem on to another landlord could backfire. A landlord interested in buying with tenants in situ would do their financial calculations, and perform checks on tenants they are taking on. 

Tenancy agreement differences  

Most tenancy agreements are assured shorthold tenancies, but some are regulated tenancies, and the tenant's rights vary depending on which one they have agreed. Under a regulated tenancy the landlord can only sell the property onto another landlord, with the regulated tenancy being moved over to the new landlord.  

With an assured shorthold tenancy agreement, after the fixed term has passed, landlords can provide notice through a Section 21, which has a two-month notice period. However, the Section 21 notice is due to be abolished under the Renters Reform Bill when it comes into effect. 

  

Selling with tenants in situ – pros and cons

 

There are pros and cons to selling a property to another landlord with a tenant in situ and you will need to weigh up how these pros and cons will affect your situation: 

 

Advantages of selling a house with tenants 

 
  • No loss of rental income - You'll receive rent until the house is sold, so there will be no void periods where the cost falls on you.
  • Less disruption for the tenants - Evicting a tenant can be difficult, especially if you have long-term tenants settled in your property. When you sell in situ, you do not have to uproot them. 
  • Buyer receives income immediately - The landlord buying your property will have a guaranteed yield, which will give them confidence that it will be a profitable investment.
  • Secure a higher price - Properties with good rental yields are an attractive investment, meaning you might secure a higher price with tenants in situ. They also won't have to pay tenant-finding costs.
 

Disadvantages of selling a house with tenants 

 
  • Difficult to arrange viewings - When tenants live in your property, they have the right of "quiet enjoyment". They can refuse to allow viewings unless the tenancy agreement states that they must allow viewings. 
  • Reduces the pool of prospective buyers - If you are selling with tenants in situ, you are limiting who you can sell to. Landlords will be your prospective buyers and not buyers who want to live in the property themselves. 
  • Tenants can put buyers off - If your tenants are not looking after the property very well or it is untidy for a viewing, the property's condition may put buyers off.  
 

 Legally repossessing your property

 

If you decide to gain possession of your property first, you must follow the legal process. The best way is a Section 21, no-fault eviction. Read full details of how to do this on the gov.uk website

  

Be aware that the government pledged to end Section 21 evictions, so check the gov.uk website for the latest information first. 

  

Notifying your tenant of the sale 

 

As a courtesy, contact your tenants well in advance and explain what is happening. If you intend to repossess the property first, explain your reasons for wishing to sell - this would be the point to give them a chance to make an offer if they want to do so. 

  

If you are selling the property with tenants in situ, explain why you need to sell. Reassure your tenants that you will sell to another landlord, so everything about their tenancy should stay the same. Being open and honest with your tenants and getting them onside will help viewings go more smoothly. 

  

Can you demand more money for your property with tenants in situ? 

 

This really depends on the market conditions in your local area - if there is high demand for buy-to-let properties, or if finding good tenants is a particular challenge. Theoretically, you should be able to command a premium because the property has tenants in place, saving the buyer money and stress. 

  

However, taking on someone else's tenants entails more risk for the buyer, and the experienced landlords who buy this sort of property may strike a hard bargain.

  

Who should I instruct to sell my tenanted property? 

 

There are a few different options available to a landlord selling a tenanted property:  

  

Auction 

You can sell the property at auction, but this option can be more of a gamble, as landlords may not be willing to meet your reserve fee. The open market valuation provided by auctioneers will be lower than an estate agent valuation, with the hope of driving the price up through competitive bidding. Auctions can be overwhelming if you are unfamiliar with how they work, and you will likely have to pay a fee of around 2% -2-5 %.  

  

Home buying company 

Another option is selling your property to a home-buying company, which guarantees a quick sale. The main disadvantage of this option is that the company will not pay the property's real value, which you could achieve with another type of buyer. 

  

Estate agent

Selling a house with tenants in situ is more complicated than a standard house sale. Still, if you choose an experienced estate agent, they can help you find the right type of buyer. A good estate agent should also be able to provide you with an accurate valuation, considering the current rental property market and house price trends. 

  

Selling a buy-to-let with sitting tenants: the process 

 

Selling a property with tenants in situ can be the ideal scenario for you as the seller, the tenants and the buyer. To help you prepare for selling the property, the process will include the following steps (although these may vary depending on the sale method): 

  

1 Scheduling and arranging viewings 

 

Check your tenancy for any clauses about viewings - if there aren't any you may need to rely on your tenant's goodwill. Remember that landlords need to give tenants 24 hours' written notice before any property visits - and need their permission. Try to be considerate about arranging viewings at reasonable times - giving the tenants the chance to go out if they prefer. Some landlords offer incentives, such as rent reductions, to sweeten the viewing period.

  

2 Paperwork and changing the tenancy agreement contract 

If you're selling the home with tenants, use a conveyancing solicitor with experience of dealing with tenants in situ. Once you have completed the sale, they will ensure the new owner automatically takes over as landlord. While this removes your obligations to the tenants, the assured shorthold tenancy agreement remains in place, even though it still contains your name and details. You will also need to gather all the documents, such as safety certificates, to pass to the buyer. 

 

3 Transferring the tenancy deposit 

 

When your tenant moved in, you will have placed their security deposit in a government-backed scheme. As part of the sale process, your conveyancing solicitor will arrange the transfer of the buyer's name to the deposit scheme you are using. For additional peace of mind, it may be worth contacting the scheme to check this has all gone smoothly. 

 

4 Completion and apportioning rent 

 

It is usual to set the completion date for the day the rent is due - so there is no need to move rental payments between seller and buyer. If this can't be done, your conveyancing solicitor will arrange to apportion any rent due to the buyer and ensure it is paid. 

  

If you are weighing up whether to sell a property with tenants, we'd be happy to offer advice. Contact us to find out more today.

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