Selling a property is one of the most stressful events a person will go through in their life. From arranging house viewings, sorting out solicitors’ fees, and finding a new property are just some of the many jobs that sellers have to undertake.
This is without factoring in selling a house with a tenant. When it comes to selling a property with tenants you get all of the stress that comes with selling a house regularly plus the added worries that tenants bring with them.
If you are selling a property with tenants and are unsure where to start, then we have got you covered. In this blog, we will be looking at the reasons why landlords might be selling rented property, how to handle selling a property with tenants, and the different options there are when it comes to selling a house with a tenant.
Looking for a quick answer? Check out the drop-down menu below!
- Can You Sell A House With Tenants?
- Why Are Landlords Selling Property With A Tenant?
- What To Consider Before Selling A House With A Tenant
- How To Handle Selling A Property With Tenants
- Dealing With A Problem Tenant
- Pros And Cons Of Selling A Property With Tenants
- How Can You Sell House With Tenants?
Can You Sell A House With Tenants?
When it comes to selling a rented property, you have two options. You can either evict your current tenants and sell a vacant property, or you can sell house with tenants.
What you decide is completely up to you. As a landlord you are within your rights to sell your property, however, it is also worth keeping in mind that your tenants have rights as well and you need to fully understand all of the legalities that go with selling a property with tenants.
If you decide to sell house with tenants, also referred to as selling with tenants in situ, then it means you are selling a property with tenants still living in it. When you sell a property with tenants in situ everything can be transferred. This means that everything about the tenancy, from the deposit, and tenancy agreement to even the tenants themselves can be transferred from the old landlord to the new one.
If marketed correctly, then potential buyers will know from the get-go that the tenants will remain. This means that once the sale has been completed, the rent will be paid to them. This can be especially attractive to buyers as it means that the new owner will not have to go through the stress involved with finding and vetting new tenants and the property will still have rental yield coming through. It is because of this that purchasing a property with tenants in situ is very popular amongst Buy To Let investors (BTL).
Whilst you can sell the property with tenants in situ, you can also choose to evict them and sell a vacant property. You will have to give your current tenants notice, but just how much is dependent on what is stated within the tenancy agreement. If in doubt, it is always a good idea to check the government website as it has all the information in regards to tenancy agreements and ending a tenancy.
It is usually more expensive to sell a property when it’s empty. This is because you will no longer be benefitting from rental income. And if you have a mortgage on the property that you are trying to sell, this could become an issue if you don’t sell it quickly.
Why Are Landlords Selling Property With A Tenant?
There are many reasons why a landlord may be selling property with tenant:
Not As Much Profit To Be Made
Whilst investing in the property market is much better than investing in the stock market, rental property ownership is still risky. This is especially the case if the landlord has taken on a lot of secured debt.
When you consider all of the regulations, costs, and tax burdens highlighted below, it is sometimes simply not worth the hassle to keep on a buy to let property.
Risks Within The Property Market
Following on from the pandemic, the housing market has seen unprecedented price growth, further fuelled by low-interest rates and other measures taken such as the Stamp Duty holiday. This means that now may be the best time to maximise your proceeds of the sale by selling up.
Skyrocketing Interest Rates
The Bank of England is in charge of controlling inflation and currently appear set on increasing the base rate. If you are a landlord who is on tracker or floating rates, or if you have any fixed rates that are coming to an end, then it may be within your best interest to sell up if it looks as though the cash flow could end up getting tight.
Whilst the introduction of regulatory measures to improve the private rental sector is undoubtedly a good thing, it can end up costing landlords in the long run.
Buy-To-Let Boom Has Come To An End
Changes such as the Stamp duty charge and stricter mortgage borrowing requirements have put the brakes on the market.
Energy Efficient Changes
New proposals that require landlords across the country to pay up to £10,000 to improve the energy efficiency of rental properties could place a lot of pressure on cashflows.
Rising Interest Rate Concerns
Whilst the rates are currently at historic lows, there is no way of knowing when the Bank of England will next push them up. Any rises would be gradual but owning a rental property could end up being an unwanted cash source, especially if the level of secured borrowings is high.
What To Consider Before Selling A House With A Tenant
Before you decide to sell a house with tenants, there are a couple of factors that you need to consider before jumping straight in.
One of the biggest things to consider before selling a house with a tenant is your tax position. If you have an investment property, you will normally be subjected to Capital Gains Tax, and, depending on your own personal circumstances, there is the potential for allowances and exemptions to be applied to reduce this liability.
Capital Gains Tax is usually up to 28% of the value of your investment, so the final tax liability may impact your decision to sell, as it will reduce the net amount of money that you are left with after the sale.
If you have made the capital improvements to the property during your ownership you may be able to offset some of the tax liability as well as using your annual allowance for Capital Gains Tax.
Your Financial Position
Another key aspect to consider before selling a house with a tenant is your financial position. If you have a mortgage then you need to be aware that there may be penalties if you sell before the end of the fixed period. If you have already accepted an offer, then you must not forget that it will normally take a couple of months for the property to go through the conveyancing and it is only when the sale completes that you will redeem the mortgage.
Your Tenancy Agreement
It is also worth keeping in mind your tenancy agreement when selling a house with a tenant. If you do decide to sell with a tenant in situ, it does not mean that you have to evict your tenants as a new person can take over as landlord. The majority of tenancy agreements have a clause in them that allows for viewings during the last month of the tenancy but you should check to see if this is specified.
A tenancy agreement also will more than likely have the right to ‘quiet enjoyment’ for your tenant. What this means is that you cannot just assume you have access to do viewings throughout their tenancy. If you are not towards the end of the tenancy, you may be able to come to an agreement with the current tenants about viewings.
Another aspect that you can consider is your tenant. Whether you are deciding to sell a vacant property or with tenants in situ it is important to be open and clear with your tenants. If you keep your tenants in the loop, they are far more likely to cooperate. There is even the chance that if given enough warning, they may want to buy the property of you.
How To Handle Selling A Property With Tenants
Depending on whether you want to sell with a tenant in situ or sell a vacant property depends on how you will handle the sale.
Selling With Tenants In Situ
If you make the decision that you want to sell with tenants in situ, then there are a few tips and tricks that can help you deal with the sale:
- You should always meet at the property, if possible. It allows the tenant to feel comfortable as you are meeting at their home and gives you as the seller the chance to check out the condition of the property.
- Be prepared to have to compromise a bit, if you are willing to bend a little you may get a more favourable outcome. Give the tenants the chance to decide when viewings should start and allow them to help make some of the decisions in the process.
- If you are open and honest with your tenants, they are more likely to understand your approach and reasoning.
- Understandably your tenants may be concerned about who the new landlord will be and whether or not they will be able to keep their home. Explain to them that you will tell the new buyer that they are good tenants and do not want to leave.
- You should try and speak to the buyer to see if sufficient time can be given to allow the tenants to find new accommodation or alternatively set up a meeting or phone call between the new buyer and the tenants.
Organising Viewings With A Tenant In Situ
Now you have explained your decision to your tenants and gotten them onside, you can start organising viewings. This can sometimes be quite an awkward situation as your tenants are still paying you rent and under common law are entitled to live in quiet enjoyment up to the point when the tenancy is legally terminated.
Not everyone is going to want their belongings photographed and displayed online but there are ways that you can try and make the process easier on your tenants and make them more likely to play along.
- It is always a good idea to work with estate agents who have experience with selling rented property.
- Whilst the tenancy agreement does state that you can visit with 24 hours’ notice, working around the tenant’s schedule will allow them to feel more in control of the situation.
- You could offer a discounted level of rent whilst viewings are going on.
Asking A Tenant To Vacate
Evicting a tenant is never an easy situation, but there are steps that you can do to make the situation easier for everyone involved:
- It is always important to be calm and respectful, giving into any bitter feelings will only prolong the process.
- Reassure them that the terms of the tenancy agreements are still valid, even if it is only periodic.
- Explain to them that you will be happy to speak to any future landlord and to offer references for them.
- Another way you can soften the blow is by offering to help them find a new home. You can do this by checking the rental sections on property portals such as Zoopla or Rightmove.
- Reassure your tenants that they will be receiving their deposit in full.
- If your tenants are struggling to find a place to move onto, you can explain to them that you are willing to wait until they have found a new home.
Dealing With A Problem Tenant
Whilst there are steps that you can take to make asking a tenant to move out easier, there will be instances when you can try all of the above and it still won’t work.
Key signs that a tenant does not want to leave and maybe a problem is that they will ignore any texts, emails, letters, or phone calls that you leave for them. Whilst there may be a genuine reason as to why a tenant may be avoiding these calls, such as illness or bereavement, eventually, you will have to step up the process.
It is always a good idea to try and get your point of view across first before instigating the costly eviction process, so it can be a good idea to first write a letter explaining your side of things. In this letter, you should really sell why they should cooperate with you. You can do this by explaining how the eviction process can badly affect their credit rating.
However, if this does not work then you may be left with no choice other than to start the eviction process. There is one main way in which a landlord can regain possession of their property: through Section 8 of The Housing Act 1988.
You can evoke this act but it is first a good idea to speak to a qualified legal specialist unless you have experience in the matter.
Previously, landlords would have been able to enact a section 21 with a two month notice period and no reason behind it. However, in June 2022, the Government banned ‘no-cause evictions’.
Section 8 Notice
This is served to regain possession of the property during a tenancy term due to a breach of contract by a tenant. In this legislation, there are 17 grounds of possession listed. A section 8 is usually used when there are two or more months of rental arrears.
A section 8 notice is often viewed as a last resort as it can make things complicated if you have a difficult tenant and things have to go through court.
It is worth bearing in mind that it can be difficult to sell a property if there’s no guarantee of vacant possession before the exchange of contracts.
Pros And Cons Of Selling A Property With Tenants
As with any selling situation, there are both pros and cons to selling a property with tenants.
- Attractive To Buyers – It is completely possible to resell buy-to-let properties as a traditional residential lot, sellers do not always do this. A tenanted property can be quite attractive to buyers as they represent a chance for a new buyer to gain instant rental income but it also bypasses the need to spend money on the property whilst they ready it for new tenants.
- Good Tenants – Every would-be landlord is looking for good, low-maintenance tenants to occupy their properties. If you are selling a property that comes with good tenants in situ, then it is more likely to sell quickly.
- Harder To Find A Buyer – The downside to selling property with a tenant is that it is often a much slower process. Tenanted properties are advertised to a much smaller pool of would-be buyers. This means that it takes longer for a tenanted property to build interest which can result in delays and a much slower sale.
- Capital Gains Tax – Another disadvantage of selling property with a tenant is Capital Gains Tax. Whilst it is not guaranteed for every seller, the higher the price you are likely to achieve could mean the higher the price of Capital Gains Tax you may have to pay.
- Viewing Complications – As we have already discussed, a landlord cannot legally enter the home of their tenants without permission and at least 24 hours notice.
- Problem Tenants – Another downside to selling property with a tenant is that you may have to deal with a difficult tenant. Finding out that your landlord is selling your home is a stressful situation for anybody so it is easy to see why some tenants may start to panic. Steps can be taken to reduce the risk of problem tenants, however, the risk can never be completely eliminated.
What Do You Need To Sell A Tenanted Property?
When selling your rented property, you are making the new buyer the landlord of the property. Because of this, the new buyer will have to follow all the legal obligations of a landlord for a tenant. As this is the case, you will need to provide the following documentation:
- Deposit – The deposit paid by the current tenants will need to be passed on from you to the new buyer along with proof that it is protected under a government-approved tenancy deposit scheme.
- Signed Tenancy Agreement – A copy of the signed tenancy agreement must be passed onto the new landlord.
- Right To Rent Evidence – As well as a signed copy of the tenancy agreement, it is a landlord’s legal responsibility to collect and keep evidence that the tenant has the right to rent in the UK. After the sale has been completed this information must be passed along.
- Inventory – The current landlord is responsible for compiling an inventory of all the furniture that is included in the property.
- Safety Certificates – Another necessary form of documentation that is required for the new landlord is safety certificates. These certificates include Gas Safety Inspection Reports and Electrical Installation Condition Report which should both be passed along. You should also include a up to date energy performance certificate (EPC).
- Repair Information – Any ongoing repairs should be reported to the new landlord.
- Legal Notices – Any legal notices served to the tenant should be passed along to the new landlord.
How Can You Sell House With Tenants?
When it comes to selling property with a tenant, there are three main outlets which you can use. You can sell with an estate agent, you can sell through an auction house or you can sell to a cash buyer. Each of these ways comes with its own pros and cons, and different ways of selling will be better suited to different sellers.
Selling through an estate agent is the most common way of selling a property, with or without tenants. The beauty of selling through an estate agent is that they will take care of everything for you, from sorting out the listing to advertising and viewings in return for a cut of the final profit.
However, one of the downsides to selling through an estate agent is that it can be time-consuming. You will need to book viewings, which your tenant will have to individually agree to. This is not only time-consuming but also can be difficult if your tenants are not too keen on the sale. As they have the right to ‘quiet enjoyment’, legally they do not have to agree to any viewings.
Another downside that comes with selling your house through an estate agent is that it can take months to find a buyer on the open market especially since you are selling property with a tenant. Properties with a tenant in situ are advertised to a smaller market so finding a buyer takes much longer.
Another option when it comes to selling property with a tenant is to sell through an auction. An auction works by agreeing on a minimum reserve price for your property, and if a buyer meets the reserve price then it sells to them.
A best-case auction scenario is that multiple buyers are interested in the property and will be outbidding each other, raising your total profit.
A positive to selling through an auction is that sales very rarely fall through as any buyers will lose their deposit as well as incurring fees and penalties.
However, property auctions do bring their own problems as well. One of the issues is that auction sales involve a lot of waiting. Marketing, viewings, and valuations can all take up to a month to complete and if it is a busy month you may have to wait for the next auction to try and sell.
Even after the auction is complete, you will still have to wait a month or more for the paperwork to go through, which adds more time to what can already be a delayed process.
On top of this, selling at an auction is not without cost. Auctioneers charge fees to cover the cost of marketing and selling your home which can once again eat away at your final profit.
The third option for selling property with a tenant is to sell through a genuine cash buyer. A cash buyer is the best way to ensure a quick sale on your property with tenants in situ. Unlike an estate agency, a cash buyer will not have to advertise to a limited number of people due to the tenants in situ, as they have the funds available to buy your property there and then.
Another positive to selling through a cash buyer is that the sale is guaranteed in a timescale that suits you.
However, if you are selling with a cash buyer then you need to be aware that you will be receiving less than market value for your home. If you are looking to walk away with full profits then selling through a cash buyer may not be for you.
This covers everything you need to know about selling property with a tenant. If you have any further questions, queries, or insight into the matter, then please feel free to get in touch!
Alexandra is a junior content producer who enjoys writing articles and finding out more about the property market.