Buying a tenanted property - the issues

When an owner who has let their property wants to sell it, they have two choices:

1. To sell subject to the tenancy
   In this case the buyer will purchase the tenanted property subject to the existing tenancy agreement. The tenant will remain in occupation, and will pay rent to the buyer after completion of the sale.
2. To sell with vacant possession on completion
   In this case the seller will have to ensure that the tenancy can be terminated and the tenant will vacate the property before the sale can be completed.

Anyone buying a tenanted property should be clear whether it is being sold with vacant possession on completion, or subject to the existing tenancy. 

Buying a tenanted property with vacant possession on completion

If the seller is offering to sell a tenanted property with vacant possession on completion any buyers should be aware that it can take a considerable time for possession to be obtained, especially if the tenant does not agree to leave. 

One problem with buying a tenanted property is that access for inspection and survey cannot be obtained unless the seller has first given notice to the tenant. Normally at least 24 hours’ notice must be given, and even then a tenant may be difficult about allowing a buyer or his surveyor to enter the property.

Tenants have a legal right to exclusive occupation until the tenancy is terminated in accordance with statutory procedures. Even if an existing tenancy agreement is due to expire the tenant has the right to remain in occupation until a notice requiring possession has been served – and even then can remain in occupation until a court order has been obtained. 

So when buying a tenanted property on the basis that the tenancy will have been terminated before completion it is best not to anticipate an early completion, but to delay exchanging contracts until it is known that the tenant has actually left the property. In this way the buyer will be sure that full possession can be obtained on completion without difficulty.

If contracts are exchanged for the sale of a tenanted property when vacant possession is to be given, it is usually agreed that completion will take place within a specified period (e.g. seven days) of the buyer being given notice that the tenant has vacated the property. But in this case neither the buyer nor the seller can be certain when completion will be. 

Agreeing a fixed completion date before the tenant has actually left can create problems if the tenant is still in occupation on the agreed date. The buyer will be entitled to delay completion, and might be able to terminate the contract and sue for damages.

Get a free, instant conveyancing quote:

Buying subject to an on-going tenancy

If buying a tenanted property on the basis that the tenant will remain in occupation under the existing tenancy, it is recommended that a Conveyancing Solicitor is chosen who has experience of dealing with such purchases. There are some steps to be followed to ensure a smooth handover, in addition to the usual conveyancing procedures.

If the buyer requires mortgage finance, it is important to ensure that a buy-to-let mortgage is obtained. Ordinary mortgages do not allow the borrower to let the property without the lender’s permission, so would not be suitable.

The buyer’s Solicitor should be informed that the purchase will be subject to the tenancy. Although the general Conveyancing work for the title transfer will be the same as for any other purchase, some additional work will be required.

It will be necessary to obtain details of the tenancy, and to see a copy of the tenancy agreement. Other information about the tenancy and the tenant will also be requested. This may be obtained from the seller, but if the property is being managed by a letting agent it is likely that they will be able to supply it. 

In particular confirmation that rent payments are up-to-date will be required, together with information about any deposit paid by the tenant when the tenancy was granted and who is holding this deposit. The seller or agents will also be asked for details of the people actually occupying the property, in case any adults other than the tenants named in the agreement are in occupation.

Enquiries will also be made as to whether either the seller or the tenant have served any notices or had any correspondence about the property.

It is also desirable to verify whether any electrical equipment, furniture and other items on the property belong to the seller and are being included in the sale, or are the tenant’s own property.

Handing over the tenancy on completion 

Arrangements will need to be made for the handover of the tenancy on completion of the purchase. This is often arranged to take place on a rent payment date, so that there will be no need for the rental income to be apportioned between the seller and the buyer. 

If completion takes place on a different day, arrangements can be made for the buyer to be credited with the rent for the period from the completion date to the next rent payment date (assuming that the tenant had paid rent in advance.)

When the rent is currently being collected by a letting agency and the buyer decides to retain their services no change in payment arrangement need be made. Otherwise the buyer’s Solicitor will obtain a letter of authority from the seller requesting the tenant to pay rent in future to the buyer. 

The Conveyancing Solicitor will also discuss arrangements for the transfer of any tenant’s deposit. The exact way this is done will depend upon who is currently holding the money, as there are three different schemes for such deposits. The buyer will need to be sure that when the tenancy ends he can obtain payment of any arrears of rent or cleaning and repair costs out of this deposit.

After completion the tenant should be notified of the change of landlord, and any new arrangements for future rent payments. When there is no change of letting agency, buyers are advised to make sure that the agency properly records the handover – it has been known for agencies to continue passing rent on to the seller after completion! 

Buyers who become landlords should seek advice on the law relating to tenancies, especially if they have not previously owned a rented property. This is a complex area of law, and a Solicitor will be able to help with specific problems. There are also several web-sites which can provide general information. 

Buying a tenanted property may only be a little more complicated that an ordinary purchase, but it is advisable to appoint a Conveyancing Solicitor who has experience of such purchases.

Homeward Legal works with many such Solicitors, so give us a ring now to discuss your purchase and we can ensure you get the best deal on your conveyancing costs.