Selling a House with Sitting Tenants

Published on August 4, 2014 by Ryan Taylor in News, Selling

Back in the days of old when I was at University in London, one of my biggest challenges was finding student accommodation that met all my requirements. It needed to be close to the University as I did not want to walk too far; it should be in an area where I could turn the music up as loud as I wanted (without causing offence); it needed to be close to shops, pubs, clubs and 24-hour takeaways; finally and probably the most important of all, it needed to be cheap and with a very understanding landlord. Needless to say, I achieved very few of these objectives but it was fun trying!

However, if you are trying to sell a property that has sitting tenants, it does not necessarily have to be difficult but unless you take the right steps, it can be somewhat hazardous. Tenants do have rights and just because you wish to sell the property, it does not give you the right to disregard your legal responsibilities. So it is essential that where possible, you keep the tenant on your side, since this often makes the path to a satisfactory sale all the more trouble-free.

Obviously, you want to try and sell the property with “vacant possession” as this should make it easier to sell. (There are occasions when you might like to sell to another landlord, but I will deal with this later on in the article.)

In reality there are several main points that you need to consider which I’ve outlined below:

Your Eviction Rights as the Vendor

Once having decided you wish to sell the property, you just cannot turn up at the door and tell the tenants that they have to go. It just does not work this way. Most of the time, there will be a written agreement between the Landlord and Tenant which is usually for a fixed term of 6 months. This is known as an Assured Short Hold Tenancy Agreement (AST) and it will give the tenant the right to stay in the property until the end of that contract period.

If the agreement does not have a specific period of time but is open-ended, you must check to see whether it includes a “break clause” which would enable you to advise the tenant your desire to terminate the agreement. Now I am not a legal expert and therefore I would strongly suggest that if this is the case, you do take legal advice before issuing any eviction orders to the tenant.

Effectively this means that tenants can, if they want, be very uncooperative and make it extremely difficult for you to show potential purchasers the inside of the property. The tenant has the right to “quiet enjoyment” of the property throughout the tenancy agreement, which gives you extremely limited rights to access the building without the approval of the tenant. Failure to gain this approval could lead to you being accused of harassment by the tenant.

At the end of the AST, the tenant is naturally supposed to vacate the premises but of course you should always give two months’ notice to quit so as to protect your rights. Yet problems can arise when the tenant refuses to leave at the end of the agreement. Whilst this might not be directly related to the sale of the property as the tenant had planned to put you in this position in any event, you could be faced with a prolonged period of time before you complete an eviction. This does not take into consideration the legal fees and other costs that are involved in obtaining a Court Eviction Order.

Your Rights to Show Potential Purchasers the Property

As you will no doubt be aware, this is an essential part of selling a property – if they can’t see it, they are unlikely to buy it!

As I mentioned above, your rights as the Landlord can be severely limited in this area. Have a careful look at the Agreement between you and the tenant and see if there is a clause that will allow you access to the property, regardless of the reason. If there is such a clause, you must give the tenant 24 hours’ notice prior to your intended visit and having done so, the tenant must comply with your request.

If there is no such clause, then the tenant does have the right to refuse you entree. If this happens, then it would be far better if you can create a relationship with the tenant that will permit viewing to take place. You could probably get their agreement by offering a reduction in the rent for a short period of time or by offering some beer or flowers that would persuade the tenant to agree.

I cannot stress enough that the more cooperation you can get from the tenant, the easier it will be to facilitate an early sale. You see you do not, as landlord, have the automatic rights to show potential purchasers around the property. In reality, it is not the tenant’s concern that you want to sell the building – the tenant holds the best cards – he has an Agreement.

Who Is Your Potential Purchaser?

In essence, there are really two types of purchasers as far as you are concerned – a) the buyer who does not want sitting tenants and does not want to be a landlord and b) an existing landlord or a potential new landlord who would far rather have a property with tenants rather than one without. Let’s look at these in detail:

1. A buyer who is not interested in becoming a landlord and will need vacant possession at the time of completing the purchase. This sort of purchaser could also include building developers but in either event, vacant possession is essential.If you are unable to come to an agreement with the sitting tenant and complete a sale of the property without vacant possession, this could present the purchaser with a legal problem. You see as the new purchaser of the property, they become responsible for the agreement which you, as the initial landlord, originally put in place with the tenant. They do not have the right to cancel this agreement and therefore do not have the right to evict a tenant. It is therefore essential that the property, in these circumstances, must be sold with vacant possession.

2. A fellow landlord! Now in many circumstances this is an existing landlord’s ideal purchaser. A landlord buys property with the sole intention of renting it for profit. This requires tenants to be in the property and paying rent. Therefore a property with sitting tenants is usually ideal for this type of purchaser.Once any sale is completed with this purchaser, the new landlord is in a win-win situation. From day one, they do not have to find a new tenant as there is already one in situ. This also means that from day one, they are able to collect rent and let’s be honest, the biggest problem for any landlord is to find suitable tenants. Yes they do have to take over the full terms and conditions of the original agreement that the tenant had with you, but at the end of the period, they can either renegotiate a new contract or alternatively, give the tenant notice to quit.

3. There is another type of purchaser that a lot of landlords have not considered when they want to sell the property. There are many tenants who are only tenants because they cannot afford to buy a property of their own. Therefore it may be possible to offer the property to the tenant. If you are in the position to do so, it may be that you have an arrangement with a bank, building society or private investors who could offer favourable terms to the tenant. It is an option that you should give some serious consideration too, because it does away with the complexities involved when selling a property with sitting tenants.

4. It is well-known fact that there is a general shortage of property throughout the United Kingdom. Our population is increasing and therefore the demand for housing is also increasing. I have found that in several parts of the country, there are Housing Associations and various local Authorities who are in desperate need of new property in order to fulfill their housing legal obligations. These bodies are similar to a private landlord but are still in the market to buy existing properties with or without sitting tenants. Often such a purchaser is in a position to complete a prompt purchase, yet all too often the price they are prepared to pay can be well below the market value. If you do have problems with sitting tenants, this may well be an option for you to consider.

As I mentioned at the beginning of this article, trying to sell a property with sitting tenants can be either a problem or a blessing in disguise.

Check your agreement and see where you stand with regards to your eviction rights with your tenant. Normally you only have two legal rights to evict a tenant namely, if the tenant is in breach of the agreement (such as non-payment of rent) or there is a natural “break clause” within the agreement.

Have a word with the tenant and see if they will cooperate in letting you show potential purchasers around the property. See if they would even consider buying the property themselves. If this looks very unlikely to be an option, try and find out what it would take to persuade the tenant to agree in terminating the agreement before its actual expiry time. This would then give you a property to sell with “vacant possession.”

There is one final solution that you might like to consider. There are a number of UK property investors who are interested in buying good properties on a cash basis. There are a number of advantages for selling a property in this way:

a) The completion of the sale can often happen within a matter of days after having agreed a mutually acceptable selling price with the purchaser.

b) The issue surrounding the question of multiple viewings of the property simply does not arise. Obviously the investors will need to carry out an inspection but this normally will only take one visit. This means that your tenant is not put to any inconvenience and even an uncooperative tenant cannot object; as a landlord you do have a right to visit the premises without being in breach of the rules for a tenant’s rights to “quiet enjoyment” and so you cannot be accused of harassment. The only point to remember is that you must give the tenant a minimum of 24 hours’ notice of your intended visit. Even an uncooperative tenant will realise that you do have the right to occasionally visit the premises, if only to ensure that the tenant has kept the property in a fair state of repair and has not damaged any of the fixtures and fittings or electrical and plumbing installations.

c) The question of evicting a sitting tenant does not arise so far as you are concerned since after completion of the sale, this is no longer your problem. This responsibility will pass fairly and squarely to the investors who will legally have to take over the terms and conditions of the present Rental Agreement that you currently have with the tenant.

d) There are no potential delays in completing the sale as you do not have to wait while a potential purchaser arranges mortgage facilities. The purchase is for cash and that is what you will receive. Vendors often receive the asking price for the property.

As you can see, there are a number of options open to you that will enable you to sell your property, even though you do have tenants in it at the moment. But I do ask that you remember these important points. Try and get the agreement and understanding of your tenant when you do decide to sell, since an uncooperative tenant is not really someone you want to deal with! Always remember your legal obligations and ensure that you do comply with them in every aspect.

A property is an investment and when it is time to sell and move on to another project, often the best way to do this is by finding an acceptable cash purchaser. If this is of interest to you, why not give us a call and see how we can help.

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About the author

Ryan has worked in many areas of property over his eight years in the business. From Lettings to Property Management to New Home Sales to Investment, his knowledge and passion are second to none. He is currently based in Nottingham.