Selling Tenanted Property?

If you own a rental property with sitting tenants and are considering selling it, you may be pleased to know that eviction may not be necessary. 

A common misconception in the rental market is that you need to evict tenants to get the highest possible price for your property. However the reality is that the right buyer will value the ongoing rental income, especially if the yield is high. 

In this guide, we will explain everything you need to know about selling a property with tenants in situ, including whether you need to evict them, reasons for selling, and the steps to take in the selling process. 

Key takeaways:

• Landlords can sell properties with tenants, transferring the existing tenancy agreement to the new owner.

• Potential buyers must be aware of the tenancy, which may attract investors but reduce interest from those seeking empty properties.

• Selling homes with tenants can be strategic due to changing financial and regulatory conditions, impacting profitability and management. 

• The Property Buying Company is the best place for landlords to sell properties with tenants in situ. 

Can you sell a house with tenants in situ?

As a landlord, you’ll be glad to know that you can sell a house with tenants in situ. When you sell a property with tenants in situ, it means that the tenants remain in the property under their existing tenancy agreement even after the sale. 

When you put your house on the open market, or start advertising the property for sale, you must make any potential buyers aware that the property has tenants. This will unfortunately lower the amount of interested buyers as they look for vacant properties, but there are many buyers looking for tenanted homes. 

The existing tenancy agreement remains in place, and the new owner must honour the terms originally agreed. This includes the duration of the lease, the rent amount and any other conditions agreed upon. The security deposit you previously held, should also be transferred to the new owner, who will then become responsible for it.

How easy is evicting tenants to sell house?

Evicting tenants to sell a house can be quite difficult, but not impossible. It is more complicated than selling an empty house, because you need to provide your tenant with property notice and follow either Section 21 or Section 8 notices. 

Either way, you need to follow strict guidelines on how and when you can evict your tenants, and wanting to sell your house is not strong enough grounds. 

You can either sell the property with tenants in situ or give the tenants notice to end the tenancy. To do this, you can use Section 21 of the Housing Act 1988, which requires at least two months’ notice in writing. Alternatively, you can use Section 8 of the Housing Act 1988, which allows eviction based on specific grounds, such as:

• You want to move back into the property.

• Your tenants have used the property for illegal reasons.

• The tenants are behind on payments.

• There is a break clause in your contract. 

Given the complexities of eviction, many landlords opt to sell their property with sitting tenants. This approach can attract buyers interested in rental income and avoid the costs and delays associated with evicting tenants.

Why sell a tenanted property?

Selling a house with tenants could either be a strategic move to release equity in a property, diversify their portfolio or be part of their exit plan. 

While the idea of having a steady rental income and appreciating assets might seem appealing, the reality is that managing tenanted properties involves more than meets the eye. But, there are various reasons why landlords may decide to sell their tenanted properties.

One of the most common reasons we encounter is that landlords have realised their current local market is no longer as profitable as it once was. The increasing regulations, costs, and tax burdens make property ownership more challenging, especially for landlords with significant debt. 

Additionally, changes in the property market, such as rising interest rates and market risks, can make selling a property with tenants a wise choice to maximise their return while they still can.

Section 24 Landlords & Tenant Act

The Section 24 changes and the Tenant Act have created significant challenges, especially for established landlords, prompting many to consider selling their tenanted properties. 

One of the primary financial impacts of Section 24 is the reduced mortgage interest relief. This has restricted landlords from deducting mortgage interest payments and other finance costs from their rental income before calculating their tax liability, instead offering a basic rate tax reduction. 

This change has substantially reduced profits, especially for higher-rate taxpayers, making it less financially viable to hold onto rental properties. Consequently, many landlords face higher tax bills, and for some, the rental income may no longer cover the mortgage payments, leading to a negative cash flow situation. This reduced profitability makes continuing to rent out properties far less attractive.

Increased regulatory burdens from the Tenant Act also play an important role in landlords’ decisions to sell. Recent amendments to tenant legislation have enhanced tenant rights, making property management more challenging.

For instance, changes include longer notice periods for evictions and stricter rules on maintaining property standards. Additionally, landlords must comply with numerous regulations to ensure tenant safety and well-being, such as mandatory electrical safety checks, smoke and carbon monoxide alarms and energy efficiency standards.

These compliance costs can be substantial, further diminishing the financial appeal of rental properties. Stricter eviction rules make it harder for landlords to remove problematic tenants, adding another layer of complexity and discouraging landlords from continuing to rent out their properties. 

Even if Section 24 is abolished, existing financial strains may still drive landlords to sell. Those who have already faced financial challenges due to higher taxes and reduced profitability might opt to stabilise their financial situation by selling their properties.

Government regulations

The overall impact of financial and regulatory changes is a significant decrease in the profitability of rental properties. 

Costly energy efficiency improvements and the Stamp Duty surcharge have also impacted the profitability of Buy To Let properties. Government regulations now require landlords to make significant investments in improving the energy efficiency of their properties, adding another layer of financial strain if the property is of historic stock. 

Difficulty in raising rents due to affordability issues and the negative perception of landlords in certain sections of the media further contribute to the decision to sell. 

Additionally some landlords may have been planning to sell for some time and see legislative changes as an opportune moment to exit the market, particularly if property values are favourable. Stricter eviction rules under new regulations may also deter landlords who have experienced difficulties with tenants in the past, further encouraging the decision to sell. 

Property market risks

Changes in the property market, such as rising interest rates and market risks, can make selling a property with tenants a wise choice to get the highest return on investment possible. When interest rates rise, mortgage payments for landlords with variable rate loans also increase, squeezing profit margins. 

Moreover, market risks such as fluctuating property values can lead to uncertainty about future returns on investment. 

Rising interest rates

Rising interest rates are a vital factor influencing landlord’s decisions to sell. Higher interest rates increase the cost of borrowing, making mortgage payments more expensive and reducing the overall profitability of rental properties. For landlords with significant mortgages or even debt, this can be a tipping point that prompts them to sell. 

Refurbishment works required

Other factors influencing the choice to sell include the challenges of dealing with problem tenants, the rise of purpose-built rental developments, the need for significant refurbishment and the desire to release locked-in equity for various purposes. 

Older properties often require substantial refurbishment to meet current standards, which can be both costly and time-consuming. For many landlords, selling the property rather than investing in extensive refurbishment works can be a more practical solution.

What are the advantages of selling a house with tenant?

Selling a house with tenants in situ offers many benefits including immediate rental income for the buyer, continued cash flow for the seller, avoidance of void periods and minimal disruption for tenants. 

Cost effective and smooth selling process

Selling a property with tenants in situ offers several advantages for landlords, making it a cost-effective and relatively smooth route to selling. One of the primary benefits is the ability to market the property as a Buy To Let investment, which is particularly appealing to fellow landlords, first-time buyers and investors. 

For the new buyer, acquiring a property with existing tenants means immediate rental income from the day of purchase, eliminating the waiting period for tenant referencing and the associated costs of preparing a property for rent. These factors significantly enhance the property’s attractiveness and can be strong selling points for landlords. 

Continuous cash flow for the seller

Another advantage is the continuity of cash flow for the seller. Landlords can continue to receive rental payments up until the date of the sale, maintaining their income stream without interruption.

Additionally, both the seller and buyer can avoid void periods - a time when the property would otherwise be empty and not generating income - thereby maximising financial efficiency and stability. 

Stability for tenants

From the tenant’s perspective, a sale with tenants in situ means minimal disruption. Tenants can remain in the property they are familiar with, providing stability and continuity for them as well. This stability can be particularly appealing in a competitive rental market where tenants value security and long-term residence options.

What are the disadvantages of selling a house with tenant?

While there are many advantages to selling a house with tenants in situ, it is important to understand the disadvantages as well. 

There are limited access for viewings, complications without existing viewing arrangements, the potential for poor property presentation, and a reduced pool of potential buyers, which landlords must consider when selling home with tenants.

Limited access for viewings

One of the major disadvantages of selling a house with tenants is the restricted access for viewings. With a tenant already living in the property, an estate agent cannot show potential buyers around the house unannounced.

As a landlord, you cannot demand access to a tenant’s house at the drop of a hat. Prospective buyers will understandably want to look around the property, which can create a challenge if your tenants are uncooperative. 

One way to get around this is to have included a right to conduct viewings in your tenancy agreement, requiring you to give your tenants written notice of 24 hours prior to the viewing taking place. 

Alternatively, you could sell your tenanted house to us, in order to bypass this issue entirely, as we do not need to conduct traditional house viewings. 

Complications without viewing arrangements

If no such arrangement exists within your rental agreement, things become more complicated. In this case, you’ll only be able to show potential buyers around with the express permission of your tenants. 

Ideally, your relationship with your tenants will be good enough that they won’t object to viewings. However, if they do refuse, your best option is to reach a compromise - perhaps by offering to discount their rent for a month to compensate for the inconvenience.

To avoid these complications, selling to The Property Buying Company can provide a straightforward solution without needing tenant cooperation for viewings. 

Presentation and property condition

Another important consideration is the condition of the property during house viewings. Tenanted properties might be messy and unclean, which would not give the best impression to potential buyers. A cluttered or poorly maintained home might prevent buyers from seeing the true potential of the property, potentially lowering their interest or offers. 

Selling to The Property Buying Company can alleviate this concern, as these companies often purchase properties as-is, without requiring them to be in show-ready condition. 

Limited buyer pool

While a tenant in situ property is an attractive option for those looking for a Buy To Let opportunity, it will not interest buyers who are looking to purchase a house to occupy themselves. This accounts for most of those looking to buy property in the UK.

It is unlikely that such buyers will want to go through the trouble of evicting a tenant, thereby limiting your potential market to investors only. 

Luckily, you are able to sell to us. We are one of the UK’s leading cash house buyers and have over 12 years of experience in buying and selling tenanted properties across the UK. 

We will buy any house, in any condition and in any location, all in as little as 7 days. And the best bit? It’s all free - as we cover all your legal fees and selling costs.

What do you need to know as a seller?

As a landlord, when selling a Buy To Let property with tenants, there are several things you need to know. The first thing is that there are many ways that you may be able to sell. One approach is to sell the property “as-is”, a common choice amongst landlords looking for a relatively fast transaction for their property portfolios. 

By opting for this route, you open the door to potential buyers who are either fellow landlords or owner occupiers willing to invest some effort into refurbishing the property. These individuals are usually undeterred by the presence of current tenants and are willing to take on the responsibility of managing the property. 

It’s important to consider the desires of the tenants themselves. In some cases, the tenants may express an interest in remaining in the property even after it changes ownership. Should this be the case, selling to another landlord who is willing to accommodate their tenancy becomes a more suitable option. 

By selling to a new landlord, you not only provide a convenient solution for the tenants, who avoid the hassle of finding alternative housing, but you also benefit from the rental income up until the completion of the sale. 

If this is a route you would like to explore then why not reach out to us? We can either buy your tenanted property directly off you for cash, or find you an investor or landlord to buy your property.

What happens to the tenant's deposit?

As part of the sale, you will need to arrange for the tenant’s deposit to be transferred to the buyer. The new landlord must register the tenancy deposit for protection, ensuring it complies with legal requirements. Before transferring the deposit, the new landlord should provide proof of its registration.

The process must be completed within 30 days of the sale. It is important to note that the original registration cannot simply be transferred between two deposit scheme insured accounts. The terms of the tenant’s agreement should remain unchanged.

Reasons why landlords sell tenanted property?

These days, the “set and forget” approach to rental property is no longer a viable option. Many landlords find themselves dealing with more hassles than expected and need to adapt a completely different attitude than they would have needed 10 to 20 years ago.

Individually, each of the reasons imposes some level of financial burden on landlords. However, when combined, the strain becomes a very significant squeeze. Rising costs from increased regulation, maintenance and refurbishment needs, coupled with reduced profitability from tax changes and interest hikes, make rental properties far less financially viable.

Selling property to a regular buyer

When selling your tenanted property to a regular homebuyer, it’s ideal to align the sale with the tenant’s departure, depending on the property’s condition. However, if the property requires refurbishment, it’s advisable to complete the work yourself to potentially achieve a higher market price.

If you choose to sell your house to a cash buyer, refurbishments aren’t necessary as they typically purchase properties “as-is.”

Selling a house with tenants in situ on the open market presents challenges, particularly with arranging viewings. Balancing the sale process with protecting your tenant’s rights requires careful planning to avoid straining the relationship. 

Here are some best practices:

1. Giving notice: Provide your tenant with at least 24 hours notice before a viewing. The more notice you give, the easier it is for them to make arrangements, reducing their stress.

2. Seek consent: Always obtain the tenant’s consent. If the proposed date and time for viewings are inconvenient, you must reschedule. Ask when the most convenient time for them is and plan accordingly.

3. Be cautious: Avoid scheduling constant viewings, as this can be perceived as intrusive and may violate your responsibilities as a landlord. Tenants have significant rights in this situation, and failing to respect them could be considered trespassing. 

Selling property to another landlord

Selling your property with a tenant in situ to a landlord can be a great way to avoid the immediate eviction process and keep monthly rental income coming through up until the property sells. 

If you are looking to sell your property with a tenant in situ to another landlord, you will need to take into account that you are selling your business to another business owner, and therefore will need to take care in preparing documentation to increase the chances of a sale completing. 

Many landlords will be Buy To let investors, and will be very intrigued by the amount of rental yield tied to the property, and what Return on Investment they can get from your property. 

But, regardless of the type of landlord your buyer is, you will need to provide them with the following information, your solicitor will be able to help you with most of it:

As the seller of your tenanted property, you need to make sure that the prospective buyer has the appropriate financing in place. This could be through a cash purchase, Buy To Let mortgage or a bridging loan. 

If a new landlord has secured the correct financing, aim to align the completion date with the due date of the rent. This avoids the need for rental apportionments, making the transition smoother and simpler. 

If rental payments are made to a lettings agent, with whom the buyer wishes to continue, the agent should be notified. If not, the new landlord’s conveyancer will need a letter of authority from you, the seller, confirming that the tenant will pay rent to the new landlord. 

The buyer’s solicitor must ensure the Section 48 Notice is correctly served. This requires the new landlord to inform the tenants that the property interests have been legally transferred in accordance with Section 8 of the Landlord and Tenant Act 1985. 

Existing tenancy agreements will remain valid under your name, even though there is a new owner. In some cases, property owners enter into a commercial lease with a proactive landlord and split the profits, a practice known as rent to rent or guaranteed rent arrangement.

How much notice do you need to give tenants when selling?

When it comes to selling your occupied rental property, you will need to issue a Section 21 (no-fault eviction) Notice. This means you must provide a tenant with a minimum of 2 months’ notice when selling the property. This is regardless of whether they are on a fixed-term contract or a periodic tenancy. 

You cannot evict tenants within the first 4 months of the tenancy and if your tenants are on a fixed term contract, they have the right to stay for the entire duration of the fixed term unless there is a break clause in the rental agreement. For instance, if they signed a 12-month fixed-term tenancy with a 6-month break clause, you can ask them to leave after the first 6 months. 

If there is no break clause, you can issue the notice from the end of month 10, reclaiming the property after 12 months. There are some specific conditions under which a Section 21 notice may not be valid, including:

• The tenant is not an AST

• You failed to protect the tenant;s deposit properly or did not share the protection information with them.

• THe property requires a licence that you do not have.

• The notice was served using the incorrect government form. 

• The notice was given within the first 4 months of a fixed term tenancy without a break clause. 

• You did not provide necessary documents such as a Gas Safety Certificate, Energy Performance Certificate (EPC), or the latest ‘How to Rent’ guide. 

You can also issue a Section 8 notice to evict tenants if they have breached the terms of their tenancy. This notice requires a valid reason, such as non payment of rent, property damage or being a nuisance to neighbours. The notice period for a Section 8 can vary between 14 days and two months, depending on the reason for eviction.

Can my tenants refuse viewings?

Yes, your tenants can refuse viewings, and it is their statutory right. Tenants have the right to possession and to the lawful use and enjoyment of the premises. These rights remain in place until the tenancy officially ends, even if the tenancy agreement is nearing its conclusion.

To manage this situation, consider arranging viewings during the last few weeks of the tenancy or after the tenants have moved out. While this approach may lead to a longer void period, it helps avoid potential legal disputes.

Alternatively, you could sell a house with tenants directly to us, and we will buy it for cash, with tenants. 

Review your tenancy agreement for a clause about viewings. Even if such a clause exists, tenants can still refuse access. You cannot proceed with viewings without their permission. Entering the property without tenant consent, even if a viewing clause is present, constitutes forceful entry and is illegal. This could lead to harassment charges. 

If your tenancy agreement does not include a term about viewings, follow these guidelines:

Do:

• Ask tenants to allow limited viewings.

• Check if tenants have a preferred time for viewings.

• Give at least 24 hours’ notice before a viewing.

• Confirm that tenants agree before proceeding.

Do Not:

• Conduct viewings without tenants’ consent.

• Ask tenants to leave the property during viewings.

• Insist that the property be thoroughly cleaned before viewings.

To avoid issues in the future, include a “viewing clause” in your tenancy agreement. This clause should explain how and when you can access the property, usually for inspections or repairs, with at least 24 hours notice and tenant permission. A term that interferes with the tenant’s right to peaceful occupation is considered unfair.

If a tenant refuses access despite a reasonable viewing clause and your efforts to address the issue amicably, the tenant may be in breach of contract. In such cases, you could serve a Section 8 Notice.

Can landlord sell house to tenants?

Selling your tenanted property directly to the tenants in situ can be mutually beneficial, helping your tenant get onto the property ladder and making the process easier and less costly for you. 

Advantages of selling to your tenant

Selling to your current tenant offers several advantages:

• No need for new buyers: Selling to your current tenant eliminates the need to search for new buyers or pay an estate agent to market your property.

• Reduced sale time: The process can be faster, as you already have an interested party in place. 

To proceed, you must provide your tenant with formal notice of your intention to sell, ensure their right to fair negotiation, and follow the terms of their existing tenancy agreement. 

If you currently work with a letting agent, check your obligations for ending the arrangement, including any required notice period or fees for selling to the tenant, as some contracts may require you to pay a fee since they originally introduced you. 

Offering a discount

Some landlords offer tenants a discount on the market value of the property. This acknowledges the rent paid over previous months and years and saves on estate agent fees. The discount can act as a deposit, helping tenants level the playing field. 

Risks of selling to your tenant

There are risks to consider when selling to your tenant:

• Price negotiations: Tenants may push for a price reduction, arguing they’ve been paying rent for years and you’re saving money by selling to them.

• Mortgage eligibility: Ensure your tenant is eligible for a mortgage and obtain a Mortgage Agreement in Principle before starting the sale process.

• Tenancy agreement complications: There may be complications if the tenancy agreement ends before the property purchase is complete.

What is the best place to sell house with tenants?

The best place to sell house with tenants is through The Property Buying Company. We offer two main options; buying your house for cash directly or helping you find a landlord or investor to purchase it. 

We have our own cash reserves, allowing us to buy your house directly. This eliminates the need to wait for mortgage approvals and enables us to complete the purchase in as little as seven days. This quick turnaround allows you to move on from the property on a timescale that suits you. 

With over 100 years of combined experience in the property buying and selling industry, holding our own tenanted properties and having more than 12 years of practical experience, we are well-equipped to handle your sale efficiently. Our expertise has made us the UK’s top-rated cash house buyer.

We provide flexible solutions tailored to your specific needs, whether you need a quick 7 days house sale, or need more time to transition. 

If selling directly through us doesn’t meet your needs, another excellent option is selling your tenanted property at auctions. Auctions attract a targeted audience of landlords and investors looking for properties with good rental yields. This method ensures a competitive environment where your property can achieve its market value quickly.

By choosing The Property Buying Company or selling at auction, you can ensure a smooth, efficient and profitable sale of your tenanted property.

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