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Sell A Property with Tenants in Situ
Are you thinking of buying a property to rent out or buying with the tenants in situ? With our latest guide, we will explore the meaning of a sitting tenant. We will then look at the key differences between online estate agents and the high-street market and how these could affect your planned sale. Finally, we look at the pros and cons of the various routes to selling a rental property with tenants.
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What Is a Sitting Tenant?
The term sitting tenant or tenant in situ refers to a tenant who remains in a property when the property is being sold
A property may have a sitting tenant for a few different reasons. Sometimes an investor will choose to sell a house with tenants because a property offers an attractive investment opportunity for other landlords with a tenant already in situ. Alternatively, a property may have a sitting tenant because the property owner needs a quick sale and can’t afford to wait for the current tenancy to come to an end, or because the tenant has an assured tenancy that prevents them from being evicted.
The Benefits of Selling A Tenanted Property
First, if you can keep tenants in place and sell to another landlord, you carry on receiving rental income right up to the date the sale is completed. However, if you serve notice on the tenants and have a property sitting empty, it is no longer earning, and there is no guarantee of achieving a quick sale. If your property is not sold fast, then this could add up to a significant loss of income and leave you having to cover mortgage payments for an extended period
The same reasoning also applies to the buyer, who starts receiving income straight away and at a known rate so they know exactly what they are getting. The rent is also a good indicator of the condition and desirability of the property, which again is especially important for buyers who are unable to inspect it in person because they are not local, or they live overseas.
If you wait until the property is vacant before marketing it, you are immediately adding two months to your timeline. With proper marketing, you can keep your options open, attracting investors who want tenants in place but also letting other buyers know that notice could be served if they have a mortgage offer accepted.
Telling your tenants they need to leave their homes is not a pleasant job, for them or for you. If you sell to another landlord, the tenancy agreement will carry on unchanged, but it’s understandable that your tenants might feel worried. It’s essential to be open and honest with your tenants if you are planning to sell so that they can be fully prepared.
Also, selling a property vacant following a period of rental will generally mean redecorating, replacing carpets and so on. By keeping tenants in place you can sell the property “as is”, saving both time and money.
Having reliable tenants in place means you know your property is being looked after. While landlord insurance will normally allow for certain periods of vacancy, if the property is going to be empty for an extended period you may need specialist vacant-property cover.
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Selling a House With Tenants: What Are Your Options?
Auction
Property auctions often attract investors, so they can be a great place to sell a tenanted property.
The biggest downside to selling a property with tenants at an auction is that it is difficult to predict what price you’ll achieve. If there is a great deal of interest in a property, competing bids will drive the price up. If there aren’t many bidders for your particular property, it could end up selling for much less than predicted. Around 30 per cent of properties that go to auction fail to sell. If your property does not receive any successful bids, you will still be required to pay the listing and marketing costs associated with taking a property to auction.
Including marketing time, selling at auction will usually take 8-10 weeks.
Open market
There is nothing to stop you from selling a tenanted property on the open market through an estate agent, just as you would with any other property. You will, of course, achieve a lower sale price than you would if you were selling a vacant property, but selling via an estate agent will enable you to get the property listed on the main property portals, which will help you reach the widest possible audience.
It currently takes an average of 4-6 months to complete the sale of a property on the open market, however, it may take longer if your property can only be sold to investors.
Cash home-buying companies
There are cash home-buying companies that buy rental properties with tenants, who will offer to buy your property directly.
It’s worth noting that many property-buying companies who say they can buy tenanted properties will be acting as brokers. This means they will try to find an investor to purchase your property. They will not be able to offer you any guarantees about the price they will pay for your property or how quickly they can buy it.
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Frequently Asked Questions About Selling A Tenanted Property in Leicester
Can a sitting tenant buy the property?
If you are thinking of selling your rental property directly to your tenants, this may seem like the easiest and quickest solution. This is called buying as a sitting tenant.
There are pros and cons to selling your rental property directly to your tenants:
Pros of selling to your tenant:
- Hassle-free: No need to market your property or pay estate agency fees
- Easy move: No moving process and no need to hand over keys upon completion
Cons of selling to your tenant:
- Appeal to negotiate: Some tenants may feel entitled to pay less than the market value in exchange for a hassle-free, easy sale. Some others may feel they have added value to the property while they have been living there.
How much notice do I have to give a tenant if I want to sell my property?
The sale may come as a shock to the tenant, so try to explain your reasons for the sale as it could go a long way in making the eviction process amicable and pleasant for all involved. Be polite and respectful as being told you need to leave your home, can be a distressing conversation for a tenant and one that needs to be handled with care.
Also, it is crucial to know your rights and theirs in order to follow the legal process correctly and efficiently to make the process easier for the tenant and buyer.
Can a landlord sell a property without notifying the tenants?
A landlord should always inform their tenant that their property is being sold. Even if they don’t inform the tenant until the sale is complete, the tenancy agreement will stand. This means the new landlord will simply inherit the existing tenancy agreement and will have to abide by the terms of it. They will not be able to evict the tenant simply even when the property has changed ownership.
What rights do sitting tenants have?
When selling a rental property with a tenant in situ, the tenant does have certain rights which must be observed.
When it comes to the tenant’s right to remain in the property, it will all depend on what type of tenancy agreement is in place. If your tenant has an assured shorthold tenancy (AST) agreement, then they have the right to live in a property for a fixed period.
If you need to sell your rental property before the agreed end date, your tenant is entitled to stay on as a sitting tenant while the property changes hands. In simple terms, they have sitting tenants’ rights.
Can you evict a tenant because you want to sell the property?
The landlord cannot evict the tenant within the first 4 months of their tenancy, whether they are on a fixed-term contract or a flexible periodic tenancy.
After 4 months, the landlord can give a 2 months notice at any time.
If they are on a fixed-term contract, they have the right to stay for the duration of the fixed term, unless there’s a clause in the rental contract that says otherwise. This is usually called a break clause in a contract.
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