Written by Polly Greenway, Director of DOMVS estate agents in Dorset
Why Sell a Property with Tenants
While most landlords will give notice to their tenants before selling their rental property, it is becoming more commonplace for a landlord to sell their investment with tenants in situ. This is usually because they are tied into a fixed contract, have a sitting tenant, or want to avoid the costs associated with selling an empty property.
There are some additional considerations for selling a property with tenants, and this article aims to answer some of those issues. For more complex circumstances, we’re always on hand to talk you through the process in person or over the phone.
Selling a Rental Property in the Current Market
At the time of writing, DOMVS estate agency in Dorset is seeing an increase in the number of landlords looking to sell their rental properties.
The NRLA’s most recent Landlord Confidence Index Q3 2022, shows the score has fallen for the third consecutive quarter with 33% of landlords planning to sell a rental property in the next 12 months. It’s worth noting however, that these figures are representative of the whole UK market, and the south west lettings market is still buoyant, with plenty of tenants seeking a rental property, in what is currently a rising market. Indeed, according to the ONS’ latest rental index, rents in the south west increased by 4.4% in the 12 months to December 2022, so there is still a healthy return to be made on buy-to-let rental investments.
Sell a Rental Property within a Fixed Term Contract
When a tenancy is agreed, it will usually be under the terms of an AST (Assured Shorthold Tenancy) contract and if this has not expired, the landlord is restricted and cannot end the terms, or sell the property during this period. In short, the tenant has the right to remain in the property for the remainder of the fixed term.
If the landlord decides to sell a property with tenants, all potential buyers should be made aware that the property comes with ‘tenants in situ’ on all marketing material. As a result, an incoming investor should be prepared to inherit the tenancy terms, and transfer the AST into their own name once the transaction is complete.
Sell a Rental Property with a ‘Sitting Tenant’
A ‘sitting tenant’ will have usually entered into the tenancy before 1989, and without an AST they will have earned the security of tenure. This means they retain the right to remain in their home under the Rent Act 1977. It is still possible to sell a property with a sitting tenant but it is more complicated as potential buyers are unlikely to secure a mortgage for the purchase. In these circumstances, it is important to have an agent acting on behalf of the landlord who understands the complexities of sitting tenants.
Top Tips for Landlords Selling a Rental Property with Tenants
1) Provide Notice to Tenants
If a landlord decides to sell a rental property with tenants, then honesty is the best policy. To avoid any unsettling hearsay, the news should always come directly from the landlord, prior to marketing the property and will ensure the process starts on the right foot.
2) Give Reassurance to Tenants
Landlords should reassure their tenants that the property is being sold to another investor who will respect the terms of their existing contract. Also let them know they will be kept informed of any decisions that may impact their residency. Giving reassurance will help to maintain their support with increased access to their home.
3) Be Aware of both the Landlord’s and Tenant’s Legal Rights
Landlords have a legal right to enter their tenanted property, for estate agency visits or viewings. They must however, provide 24-hrs written notice to their tenants. A tenant can legally refuse entry, on reasonable grounds, and this is why it’s important to keep relationships amicable. More information about tenants’ rights can be found on the Government’s ‘Private Renting’ page.
The Pros and Cons of Selling a Tenanted Property
- Selling a rental property with tenants in situ proves its rentability with a guaranteed return-on-investment for the contract period
- As the property will be sold as a ‘going concern’ there will be no void periods and no need to re-market the property on completion
- An existing tenancy will be fully compliant with current regulations so an investor will not have the additional costs of gas safety requirements etc
- There may be limitations with how access is arranged, and so the logistics of selling will require more careful planning
- The pool of potential buyers will be smaller (see below for how DOMVS can help with this!)
Finding an Investor to Buy a Rental Property with Tenants
DOMVS has access to a group of local landlords via its Investor Club and as a first port of call would contact its members to see if the property being sold is suitable for their portfolio. Our members are happy to take on tenanted properties given the pros listed above.
Additionally, our sales team continues to regularly register buy-to-let investors, who are seeking a safe investment within a market that has seen a 4.4% rent increase (in the year to December 2022 in South West England, according to the ONS) and an even higher annual capital growth.
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