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Is it wise to buy a tenanted property?

19 November 2018 / By: / Under: Landlords

If you are buying a rental property, it’s important that you establish whether it is being sold with vacant possession on completion or subject to the existing tenancy. There are potential advantages and disadvantages in either case, but it is crucial that you choose an investment which suits your situation.

buy a tenanted property

 

Properties sold with vacant possession

If the property is being sold with vacant possession on completion, it is the seller’s responsibility to ensure that the tenancy can be terminated and that the tenant will leave before the completion date. It might take considerable time for the seller to obtain possession of their property, and so completion could be delayed. This might prove to be a serious inconvenience whether you are investing in a buy-to-let or are buying a tenanted property to live in yourself.

You should also be aware that a seller must give notice to their tenant of any surveys which are to be conducted, including a mortgage valuation survey. Tenants who do not wish to leave might make access difficult and this could result in a delay to your mortgage application.

As there may also be issues with getting the tenant to leave, it is prudent to delay exchanging contracts until you have confirmation that they have gone. You can then be sure that you are able to gain full possession on the day of completion.

Properties sold subject to tenancy

If the property you are interested in is being sold subject to tenancy, the existing tenant will remain in occupation and will pay rent to you following completion. If you are looking to live in the house, you will not be able to do so until the tenancy ends and the tenant has left. On the other hand, if you wish to rent the property, you will be able to earn income from the outset and won’t have to look for a tenant. You won’t have to refurbish the property immediately either.

A sitting tenant could be an attractive proposition but there are potential pitfalls with a tenanted property for sale. A small number of lenders will not finance the purchase of a tenanted property. Those that are prepared to lend you the money will require a new Assured Shorthold Tenancy (AST) agreement to be drawn up.

You should also be aware that lenders will only lend on properties where the rental income more than covers the mortgage repayments. Most lenders will rely on a rental valuation rather than the actual rent being paid to assess the affordability of the loan. Your lender may make other stipulations including the length of the AST.

If the owner you are dealing with is intent on selling a property with a tenant, it would be wise to choose a solicitor with experience of dealing with this type of purchase as they will be familiar with the additional checks that must be made and the potential issues which could arise.

When purchasing a property with a sitting tenant, you will inherit the previous owner’s obligations to that tenant, so it’s crucial that you make the appropriate checks before proceeding with the purchase.

Your specialist solicitor will provide the appropriate guidance, but you should find out:

  • If the tenant is up to date with their rental payments.
  • If there have been any problems with the tenant.
  • When the rent is due and how it is paid.
  • Whether any repairs requested by the tenant have yet to be completed.
  • If the local authority has issued a housing disrepair notice in the last six months.
  • If the tenant has paid a damage deposit and if this has been protected by an approved scheme. This protection is a legal requirement.
  • Whether the property is subject to licensing and if so, if this is up to date.
  • If there are there any local council restrictions regarding the type of let that is permitted.
  • Whether all the appliances, flues and pipes have been checked and serviced in the last 12 months.
  • Whether there are smoke alarms on each floor of the property and carbon monoxide alarms in any room which features a solid fuel-burning appliance.
  • Whether any of the appliances or furnishings in the property belong to the tenant.

Once you have completed the purchase of the property, you must issue a notice under Section 48 of the Landlord and Tenant Act 1987 to provide your tenant with a record of their new landlord’s address.

To protect your interests, make sure you obtain a copy of the inventory which was taken when the tenant first moved in. It’s wise to create your own inventory, but the tenant will have to grant you permission to enter the property.

The process of purchasing a tenanted property is likely to more complicated than if the property was vacant. You might need a specialist solicitor and there will be more checks to undertake but you will be generating income from the day you compete your purchase.

What’s right for you?

Only you can decide whether vacant possession on completion or a sale subject to tenancy is right for you. Do your research, ask the necessary questions and engage a specialist solicitor so that your purchase is completed smoothly and you don’t get any nasty surprises.

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