1. What is a tenant in situ?
A tenant who stays in a property that is up for sale is called a tenant in situ or a sitting tenant. It is possible, for example, that the former landlord intended to sell the property. However, the existing renter was protected from eviction by the remaining duration of their leasing agreement.
Therefore, the law protects tenants’ living conditions until the end of their lease term, depending on the terms of their lease, even during the property purchase process.
This is where the possible problem appears. The renters’ rights have not changed even though the building has a new owner.
Depending on the buyer’s circumstances, purchasing a property with tenants in situ can be ideal. After all, you should understand the benefits and drawbacks before buying.
For instance, benefits include a ready-made renter, instant rental income, and possibly cheaper purchasing pricing because the property is occupied.
Some drawbacks include the possibility of a problematic tenant, limitations on property viewings, and the requirement to uphold the current leasing agreement.
Investors who seek immediate income through property investment often find properties with tenants in situ to be a promising option. Such properties may even present themselves if one is looking for a primary residence, offering a potential source of income.
Selling such properties on the open market can be challenging. However, some investors view this as an opportunity to expand their property portfolio and maximize their returns.
2. What happens when you buy a property with tenants in situ?
When you buy a property, you might choose to keep the furniture and tenants already residing there. As the new landlord, you inherit the current tenancy agreement and its contents.
The terms of the contract and the amount of rent due will not change until the fixed-term agreement expires. Talk to your tenants about any modifications you would like to make. But keep in mind that you cannot coerce them into accepting new terms.
Plus, if the lease is terminated, the new owner must repay the security deposit. As a result, both parties will experience a seamless shift.
Purchasing a house already occupied by a tenant is often a fantastic method of receiving rent immediately. Working with a solicitor with experience purchasing commercial property is a good idea to ensure everything goes as planned.
Remember to do your due diligence by carefully examining the property’s safety, reviewing the tenancy agreement, and getting to know the renters before committing. This can guarantee a smooth and successful buying experience.
3. Important points to consider
Choosing a solicitor with ample experience handling such purchases would be best. In addition to the typical legal transfer checks and processes involved in transferring ownership of the property to you, several other essential checks need to be carried out regarding the property, tenants, and the tenancy agreement.
Safety
Does the property have a valid energy performance certificate (EPC)? Has it had a gas check? Are smoke alarms and carbon monoxide detectors in place?
Property inventory
Is there a list of the items in the property before the tenant moved in? If not, you should make one.
Tenancy agreement
It could be helpful to obtain a record of the tenancy agreement to determine the type of tenancy and the location of the tenant’s deposit. In the case of a protected tenancy, please note that there may be limitations on making alterations to the agreement or evicting the tenants.
Tenant checks
Investigate whether there’s a history of rent arrears and whether the tenant takes adequate care of the property. Discover if references and checks were made on the tenants. Are there any rent guarantors in place? Also, find out if there are any ongoing disputes with the neighbors.
4. Pros and Cons of purchasing an occupied rental property
Advantages
Typically, when a person wants to purchase a rental property, they discover it vacant, meaning they will have to find new renters. For the new renters to move in, they must also guarantee that the home is in acceptable shape. This may entail resolving problems and making sure everything functions properly.
However, there are advantages to purchasing an existing tenant-occupied home.
1. You can save significant time and money by not having to look for new tenants because you already have existing ones. When an owner purchases a house already rented out, they might discover a lot about the tenants’ payment habits and interactions with property management. As a result, you don’t need to worry about the tenant screening process.
2. In addition, the renters who live in the rental property will send you their rent payments previously made. You can count on getting your rent from the moment of ownership until the end of the tenancy agreement.
3. A property is ready for tenants when you buy a secure and habitable asset ready to be leased as soon as the existing tenant’s lease expires.
Disadvantages
The Process of Evicting Tenants Can Be Challenging
As a landlord, you may have purchased a property that already has tenants living in it. While most landlords prefer to keep their present tenants, some may consider evicting them and seeking new ones. However, it’s crucial to remember that this process can be challenging and may bring up many issues.
If you’re looking to purchase a property without tenants, it’s important to include a clause in your contract before exchanging contracts. This ensures that the property will be vacant upon the sale’s completion.
Uncooperative Tenants
Essentially, the new landlord must honor the terms and conditions of the original lease agreement. Unfortunately, this could pose some difficulties if the tenants are uncooperative and insist on sticking to the original payment arrangement, leading to potential losses of time and money for the landlord.
If you decide to evict your tenants, you can take certain steps. One of them is to change the conditions of the lease agreement or offer financial compensation. But, tenants are not legally required to accept these terms.
Legal Risks
One thing to keep in mind when considering buying a property with tenants is that you’ll be taking on all the legal responsibilities associated with it. As the new landlord, you’ll ensure everything on the property meets legal requirements.
Please note: This article does not constitute legal advice – the information on this page has been prepared solely for your information. As we are not a law firm and act as a platform, we can and may share our estimations, but we cannot give you legal advice for your individual further proceedings.
