If a property is purchased with a tenant in situ or a sitting tenant, then the tenant living at the property before the purchase will stay in place after the property is sold and become the tenant of the new owner.
There are multiple benefits to buying a property with a sitting tenant. For example, if the property is a buy to let property, the new landlord will receive immediate income and this in turn avoids the property initially sitting empty whilst finding a tenant. Properties with sitting tenants also tend to sell for a lower price than those with vacant possession.
However, there are also many things to carefully consider when buying a property with a tenant in situ. Arguably, the most important factor to consider is that upon purchase of the property, the new landlord takes on all obligations and liabilities of the previous landlord. New landlords should therefore take note of:
- Whether the property has a valid EPC. To comply with the Minimum Level of Energy Efficiency standard, domestic private rented properties must have an EPC rating of E or above to be able to be let. If this is not the case, steps will need to be taken by the new landlord immediately to improve the energy rating.
- Whether the property currently has a valid gas safety certificate commissioned. To comply with the Deregulation Act 2015, all tenancies commencing on or after 1 October 2015 must have a gas safety certificate. Gas safety certificates expire after 12 months, so require renewal every year.
- Whether a gas safety certificate was commissioned at the date the tenant took occupation of the property. If the tenancy began on or after 1 October 2015 and a valid gas safety certificate was not commissioned at the time the tenant took occupation of the Property, no landlord can ever serve a valid Section 21 (no fault) eviction notice.
- Whether the tenant was given a hard copy of the 'How to Rent' guide from the Department for Communities and Local Government at the beginning of each tenancy, and whether the version provided was the correct version at the time of service. This is a legal requirement for all tenancies created or renewed from 1 October 2015 under the Deregulation Act 2015.
- Whether the tenants deposit was protected within 30 days of receipt, and whether it was protected correctly in accordance with the Housing Act 2004. Failure of the old landlord to correctly protect a deposit, or to comply with initial requirements of the deposit protection scheme could leave the new landlord potentially liable to pay the tenant compensation. The compensation could amount to 1 to 3 times the amount of the deposit for each new tenancy.
- Whether a forfeiture clause is included in the tenancy agreement. This usually provides for the landlords right to regain possession of the property if the tenant breaches the agreement.
- Whether there is a smoke alarm on each storey of the property used as living accommodation, and a carbon monoxide alarm in any room of the property used as living accommodation with a fixed combustion appliance. If there is not, under the Smoke and Carbon Monoxide Alarm Regulations the new landlord will need to install these and check they are in proper working order.
- Whether the property is required to be licensed, and if so whether this is in place. Some rental properties will require a selective property license or a house in multiple occupation license. Landlords with unlicensed rented properties could receive a financial penalty notice under the Housing Act 2004 of up to £30,000, and a Section 21 eviction notice will not be able to be served until a license is at least applied for by the new landlord.
- Whether there are any verbal agreements in place between the old landlord and the tenant, as the new landlord may be obliged to fulfil the agreement.
- Whether the old landlord has undertaken the right to rent checks and has evidence to demonstrate this. The new landlord should confirm this and take note of when follow up checks are required, as if after the sale the tenant loses their right to rent and the follow up checks are not conducted, the new landlord will be responsible and could be liable for a civil penalty.
- The registration gap is the time between submitting a Land Registry application and receipt of the new or updated register of title. The Land Registration Act 2002 confirms that the new landlord will only be an owner in equity until they are registered proprietor. Currently, the average registration gap for routine ownership/changes to existing registered titles is three months, but this time scale varies. This could cause issues if the new landlord wishes to serve an eviction notice and issue proceedings in this time.
Please note that the above list is not exhaustive and does not constitute legal advice. If you are thinking about buying a property with tenants in situ, please contact our Property Litigation team who would be more than happy to help and advise.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.