There are a few reasons why you might be buying a property with a tenant still in occupation (a sitting tenant). Usually, it’s because you are buying what is known as a ‘Buy to Let’ investment. In these cases, the presence of a tenant has several benefits. You will likely be receiving rent from day one, which will improve your return on capital and internal rate of return. You should also if you’ve done your homework, have a reliable tenant already in-situ.
Firstly, check that your mortgage lender is happy that you are purchasing the property with a tenant in situ, as most prefer the property to be unoccupied on completion.
Of course, if your tenant has been in occupation for a while, he or she may be paying a low rent that should be reviewed. This can involve negotiation and it’s important that you know the terms of the tenancy prior to purchase.
Some tenants may occupy under an old tenancy or a longer lease and in these cases, your rights as the property’s ‘owner’ may be significantly curtailed. You might not be able to gain occupation whilst the tenancy remains in place and you may even have to grant the tenant a new lease in such circumstances. It is critical that you take legal advice.
In any event, make sure that as a bare minimum you undertake the following;
- Make sure you and your legal representative have read the lease or tenancy agreement and that you understand all the terms.
- Establish whether the landlord or tenant have ever breached any of the terms of the agreement.
- In the case of a short tenancy, make sure that any surety deposit is properly held by an authorised third party in accordance with the law and make sure that this is addressed and accounted for when you purchase the property.
- Make sure to undertake a full survey and inspection of the premises before the exchange and completion of the purchase and, in the case of furnished property, undertake a detailed inventory.
- If possible, speak with the tenant. Establish whether they are happy there and what, if any, problems they know about. This can save you a lot of money post-purchase!
- If you expect to increase the rent, it might be worth floating this past the tenant to see their reaction. No-one wants to pay more but if the tenant is reasonable and happy where they are, they may be expecting a rent increase anyway.
- If you plan to regain possession, either to live there yourself or to refurbish and re-let or resell, make sure that you are legally entitled to do so and allow for the fact that if the tenant is uncooperative, there may be a delay and a cost implication to build into your figures.
- Make sure that the tenant is who they say they are and check that all necessary statutory obligations have been undertaken, such as annual gas safety inspections, electrical inspections, the installation of fire and gas alarms, where required and that any furniture is properly tagged as safe for tenanted accommodation.
- Make sure to check that no-one else lives in the property or has acquired rights over the property during the previous ownership. This is usually done through various searches and the completion of a TA6 form that is filled out by the seller.
Last, of all, remember that tenants are people too! It’s amazing what you can agree if you make the deal appealing to their interests. Perhaps in return for you fixing a few taps and replacing a carpet, you can get them to sign a new tenancy or increase the rent on their existing one?
For more information, book a free appointment to speak to one of our specialist buy to let mortgage advisers/