Tue. May 28th, 2024
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Buying a property with tenants in situ can be an attractive investment opportunity for those looking to enter the property market or expand their portfolio. It provides the perk of an instant rental revenue stream and the capability to evaluate the effectiveness of current tenancy prior to purchase. To be sure you’re making the right choice and avoiding any potential hazards, it’s crucial to take all the relevant considerations into account. If you’re looking for experienced letting agents based in Leeds, Leaders is one of the UK’s premier estate agents offering a host of property services.

In this piece, we’ll talk about what you should know about investing in real estate with tenants in situ and how to manage the risks and opportunities.

What Does A “Sitting Tenant” Or “Tenant In Situ” Mean?

A sitting tenant, also known as a tenant in situ, is an existing renter who will continue to occupy the property after the previous landlord transfers ownership to the buyer. To put it another way, you are purchasing a home that has renters in it.

Some landlords choose to sell their properties while they still have tenants living there because they don’t want to evict them or because they get along well with the tenants. In certain situations such as when the transaction is taking place while the tenancy is in effect, the tenant in situ cannot be removed. It may be more difficult to sell with tenants in place, especially if there is a mortgage involved, so a landlord selling a home with a tenant in place could have to settle for a lower value and wait for a cash buyer to come along. This may be the most convenient way for the landlord to depart the buy-to-let market if they need to.

Things To Consider Before Purchasing A Property With Tenant In Situ: 

As opposed to purchasing a home with vacant possession, purchasing a property with a tenant in place is more complicated. For this kind of transaction, it is advisable to engage with a qualified conveyancing solicitor so that nothing shady happens to you. 

Before you acquire a home with a sitting tenant, there are a number of important things that must be confirmed. These consist of:

  • Does the home have a licence? Some rental homes, particularly HMOs, require a permit. Not all landlords have a permit for their building. Some people are unaware of its necessity. Verify whether the property requires licensing. If it does, request the licence information. You could wonder what else the landlord has omitted to do if they haven’t submitted an application for a licence.
  • Are there any limitations on who you may rent the property to? For instance, in certain places, new HMOs may be prohibited in regions with a significant concentration of HMOs. You cannot turn a single-family home into a shared house due to this. 
  • Is the EPC for the property current? You may find out a property’s energy efficiency with an EPC. The seller ought to have handed one to the tenant and one is also required before the property is sold. 
  • Has there been a gas safety inspection within the recent 12 months? Every year, gas appliances need to be examined. The seller could have overlooked additional safety precautions if they are unable to provide a current gas safety certificate for the building.
  • Are there fire safety precautions in place, and when was the last time you examined them? A functioning smoke alarm and CO detector should be present, among other things. 
  • Is the Electrical Installation Condition Report (EICR) for the property adequate and up to date? Unsafe wiring poses a serious fire danger.
  • Have portable devices undergone testing? If minor appliances are part of the transaction, this is important. 
  • Has there been a risk analysis for Legionnaires’ disease?
  • Was a copy of the Department for Communities and Local Government’s “How to Rent” document supplied to the tenant?
  • Does the property have furniture, and if so, is it British Standards-approved and fire-rated? Examine couches and other upholstered goods for display labels. 
  • At the beginning of the tenancy, was a property inventory performed? Property inventories are frequently ignored, but you need to know what’s in the house before you take over the lease and what condition the house was in before it was rented. Before purchasing a home with occupied tenants, inquire about conducting a property inventory if there isn’t already one. Before contracts are exchanged, insist that all contents be covered by insurance. 
  • Was the tenant’s security deposit recorded and kept in a programme that was authorised by the government? You must agree with the seller on how the deposit will be transferred when you purchase a home that already has a tenant living there. 
  • What is the remaining time on the existing lease? The tenancy agreement’s remaining duration should be checked. It can be worthwhile to hang on and wait for empty possession if the tenancy is set to expire in the coming months. 
  • What is the tenant’s rent obligation and who is responsible for paying it? In certain leases, a third party, such as a family member, pays the rent instead of the real renter. You must be aware of the precise rent payment made by the renter. Make sure the amount the landlord provides corresponds to what the actual renter has told you. Investigate the cause if there is a difference between the two. 
  • Has the tenancy in question ever had a late rent payment? When purchasing a home with tenants already living there, this is crucial. It will be necessary to look for proof of rental receipts in the seller’s bank statements. Choosing a tenant with a record of unpaid rent might be problematic.

Prior to purchasing a home with occupants, you and your attorney are responsible for doing adequate background checks. Make your own inquiries rather than accepting the landlord’s word for it. Check to see whether the tenant and the existing landlord have any verbal arrangements in place, such as lower rent in exchange for monthly cash payments. It’s possible that the seller’s solicitor is unaware of any verbal agreements, so speak with the tenant to make sure you aren’t caught off guard by any late-day off-contract negotiations.

By Joseph