It’s not exactly easy to make money as a landlord these days and with the renters reform bill on the horizon potentially putting an end to no fault section 21 evictions, tax reforms restricting mortgage tax relief and a whole host of other nasty surprises you are certainly forgiven for wanting out while you still have a shirt on your back.
This raises the question, should you sell your house with or without the tenants in it?
Unless you are a landlord lucky enough to own buy-to-let property in areas such as prime London, where it is predicted that rental growth will increase by up to 13.6% over the next five years, you might be forgiven for feeling less than optimistic about your current prospects in the private rental sector.
With average buy-to-let mortgage rates pushing 5.38% at the end of 2023, buy-to-let mortgage arrears up 93% year on year in Q1 2024 and with lenders looking to increase rates even further due to slower than predicted base rate reductions in early 2024 it is easy to see why investment returns are decreasing significantly.
Add to that new regulations meaning less flexibility and less profitability for landlords and it is easy to see why many are choosing to sell up and exit the market while they still can in fact it is estimated that 163,000 rental properties have ‘disappeared’ from the rental market over the last 4 years.
With that in mind could selling with sitting tenants be the simplest and smartest option? In this guide we aim to uncover the facts and reveal the truth about selling a house with tenants in situ.
The short answer to this question is yes, you do have the right to sell your property along with the current tenant, providing of course that the new buyer is aware of the situation and is not just getting surprise new roommates on the day of completion. Also the tenants will need to be aware of the change of landlord and they will have a ‘say’ in the outcome and proceedings, either directly or indirectly, which we’ll get onto later.
So it is entirely possible to sell your house with tenants but the next question is should you?
There are several factors to consider and the best solution for you will depend on your own unique circumstances.
Factors such as;
Selling your property with sitting tenants does come with certain advantages when compared to the alternative route of evicting the tenants such as;
Selling your house with tenants may come with certain benefits that may be appealing but how do you go about the process? The main difference between selling a tenanted property to a vacant one is of course the tenants. While this does not significantly change the sales process itself it does add a layer of complexity to each step.
Although the general process of selling a tenanted property is more or less the same as with any property sale there are some key differences that you should be aware of, the big ones being;
Legal Obligations and Tenant Rights – First things first the tenant needs to be made aware of the sale and during the process you still need to honour all of the terms of the tenancy agreement. This includes giving fair notice for any inspections, appointments or viewings that are taking place in relation to the sale.
Marketing the Property – The marketing materials in relation to the sale will be different for a tenanted property given the market demographics that the property will appeal to, namely landlords and investors. You will need to have such things as the current rental agreement, monthly rental income and tenant history prepared and ready to give to any interested parties.
Property Viewings – With tenants in situ arranging viewings can be much more challenging, you have to arrange the viewings around the tenants schedule and give ample notice as required by law. These factors can limit the number of viewings that can reasonably be carried out, reducing the pool of potential buyers.
Sales Negotiations – The existing rental agreement will be put under the microscope by any potential buyers who might insist on changes to the current terms before committing to a purchase.
Despite these differences your options of how to sell a property with tenants in situ are not that limited. You can sell in various ways including a traditional estate agent sale, although this might not be as effective as if the property was empty due to the limited audience that such a property will appeal to.
How you decide to sell the house will depend on your circumstances. If you need to sell the house fast for example you will need to go down a different route than if you want to maximise the sale amount. The condition of the property will also need to be taken into account, if there are any issues that might put lenders off then you will need to go for a cash sale option since mortgage buyers are out of the picture.
Others differences to consider can be found in this table;
The fastest way to sell a tenanted property is to sell it to a cash house buying company. Such companies can purchase properties in a matter of weeks and don’t charge any fees, the drawback is that you can expect to be offered around 80% of the current market value of the property which can be a small price to pay for the speed and certainty on offer, especially if the property in question is costing you money on a monthly basis. When you break it down and consider all of the costs involved in selling a house and removing a tenant that 20% reduction doesn’t seem as big as it sounds at first, and if the market value of the property is now considerably higher than when you bought the property getting rid of it fast and letting someone else deal with the problems could be quite appealing.
It is worth bearing in mind that not all house buying companies will buy tenanted property as this is a more specialist area. It is also necessary to do your due diligence before speaking to any company as there are many bad eggs out there looking to rip you off. Dropping offers at the last minute or tying you into unfavourable contract terms are just two of the practices used by these disreputable companies.
You can read more about how to find the best cash house buying companies here.
Opting for a cash sale will likely mean taking a slight hit on the final amount that you receive, this can vary from between 75% – 90% depending on which option you choose;
Estate agent – You could still sell via an estate agent, there are agents that specialise in selling rental properties which could be an option if speed isn’t a major factor. This option will likely get you the highest amount but will take the most time and has the highest chance of falling through, around 1 in 3 standard open market sales never make it to completion and that’s without the added complication of a tenant.
Auction – Another option is to sell the property at auction, this has the advantage of being exclusively for cash buyers and your property will get marketed to property investors and other professional landlords. Buying a house with a tenant will appeal to this segment since they can make rental income from day one. The timeline to completion of an auction sale can be around 90 days depending on when the next auction is, if the property sells the buyer is then obligated to complete on the sale in around 30 days, they also have to pay a hefty deposit meaning fall throughs are unlikely.
Whether you choose to go down the auction route will depend in some part on your tolerance to risk. There are no guarantees at auction, on a good day with plenty of bidders you could get more than the guide price but on a bad day you could get much less and if the property doesn’t meet its reserve price it might not sell at all meaning that you either have to try again or try a different method.
Further Reading: Selling a house at auction
House buying company – There is again the option of a house buying company. Faster than the other cash sale options and more certain than auction this is a good option for those adverse to risk that can afford to take less for more certainty. As previously mentioned you can expect an offer of around 80% of the full market value of your property and a sale can complete in as little as 14 days if needed and the chances of the sale falling through are almost zero.
To get an idea of how much you could get for a cash sale of your property you can use our cash offer calculator tool by clicking the button below.
Beside the options already mentioned there are additional ways to sell your property without evicting the tenants.
There is always the option of the tenants purchasing the property. It is always a good idea to give them first refusal in any case, even if you don’t believe that they are in a position to buy it. By offering them the sale they will get a sense that you are involving them in the process and might be more helpful when it comes to things like viewing arrangements. If the tenants are in a position to buy the property even better, all you need to do then is negotiate a price that works for both of you and treat it more or less like an open market sale, only without the need to pay those hefty estate agent fees.
You might be able to find another landlord that is willing to purchase the property from you directly. Think of people in your existing network, maybe you know some high net worth individuals (HNWIs). If you don’t happen to have Bill Gates on speed dial you could attend property network events or speak to local lettings agents to see if they have any landlords that are currently buying in your area. This might take time, effort and energy for little reward though so you need to think carefully about whether it is worth your time before getting started.
Selling a property with sitting tenants is more complicated from a legal perspective, at every turn you need to consider the legal rights of the tenant and continue to honour the tenancy agreement. This can get tricky if the buyer wants to update the terms of the tenancy before the purchase which can lead to a drawn out negotiation between the buyer and the tenant with you as the piggy in the middle. It is worth thinking about the following before going ahead with the sale of the property;
The sale of a tenanted property does not automatically terminate the existing tenancy agreement. The new owner must take on and honour the terms of any fixed-term or periodic tenancies already in place unless a break clause or other legal grounds for termination applies, although if it did you would still have to go through the formal legal process of eviction. Quite often buyers won’t be 100% happy with the existing tenancy agreement and may want to make some amendments, which can become a time consuming process where the tenants agreement is also needed.
If you don’t know if the tenancy is fixed-term or periodic, here are the definitions;
Tenants have protected rights under UK law you must be sure not to violate any of these during the sale process, including during the marketing of the property for sale and subsequent negotiations with the buyer and throughout the conveyancing process.
These rights include, the right to:
Upon the sale of the property, you must either transfer the tenancy deposit to the new owner or give it back to the tenant, depending on the agreement you make with the buyer. This transfer should be documented, and the tenants should be informed accordingly. This will be arranged by the solicitors.
It is required to inform the tenants of the change in ownership. This information should include the new landlord’s name and address, and it must be provided within a specific timeframe, usually within two months of the transfer of ownership. You can do this yourself or agree that the buyer will do this themselves.
All of the legal documentation related to the sale must correctly identify the presence of the sitting tenants and the terms of their tenancies. This includes ensuring that all rental agreements, property management agreements, and tenant notices are legally compliant, correctly documented and up to date including safety certificates and inventories.
Failure to comply with your legal responsibilities can lead to disputes or legal recourse from the tenants that is why it is important to seek professional legal advice before and throughout the sale process. You should ensure that all actions taken during the sale process comply with the law to avoid any potential legal disputes which could slow down or stop the sale.
You should always seek legal advice from a legal professional before taking any action towards the sale of a tenanted property.
When it comes to selling your property with the tenants in situ you also need to consider the additional documentation that you will be required to provide which will all need to be up-to-date and in good order to prevent any delays or issues with the sale. Documentation such as;
Providing incorrect, incomplete or outdated information can delay or even scupper the sale so always take time to ensure that the information you are providing is accurate, it is always worth seeking professional legal advice to assist you with this.
Along with the legal factors you also need to consider the financial implications of selling the house tenanted;
1. Market Value – The fact that a tenanted property will only appeal to a niche pool of potential buyers will have an impact on the sale price of the property, likely lowering the value compared to if the property was sold on the open market with vacant possession. This reduced price needs to be weighed against the financial benefits that come with selling the property tenanted including;
2. Tax Considerations – If the property has increased in value since you bought it you will likely have to pay capital gains tax (CGT). This is the case if you sell the property tenanted or not but is worth bearing in mind when weighing up if you should sell or hold onto the property.
3. Higher legal fees – Your solicitor fees will be higher if selling your house along with its occupants due to the additional steps and higher workload required from the solicitor such as transferring the tenants deposit and updating the tenancy agreement to the new owner. If you decide to sell the property to a house buying company however they will either cover your legal fees entirely or contribute somewhere between £1000 – £1500 towards them.
All of this might seem like a walk in the park if you have a ‘good’ tenant that has no rental arrears and an immaculate track record but what if you have the tenant from hell? No investor will want to purchase a headache so they will do their due diligence before making a concrete offer. They will ask about the tenants record including payment history and although some might take a view on the odd late payment here and there no one in their right mind would purchase a property where the tenant is in significant arrears, even most professional house buyers will bow out if this is the case.
There is a solution to this problem however, certain specialist funds will purchase property with problem tenants in situ and deal with the situation after they own the property. The situation with the tenant will be taken into account when it comes to the price that you will get but they will purchase the property fast meaning that you can stop haemorrhaging cash and remove the stress of dealing with the nightmare situation that you have found yourself in.
This is a good option for ‘accidental landlords’ such as this one;
Having to resort to handing the keys of your hard earned assets over to a lender due to tenant issues should not even be a consideration but unfortunately in today’s private rental landscape this is all too common an occurrence, buy-to-let repossessions at their highest level in 4 years and continuing to rise.
If you find yourself in a difficult position with a problem tenant who is refusing to pay we can help, we have access to specialists that can resolve your issue fast.
To speak to one of our cash sale experts click the button below, answer a few straight forward questions and an expert will call you back to discuss your options.
Not only are you legally obliged to communicate with your tenant throughout the house sale process, giving relevant notice and being transparent about the situation. Communication with the tenant is also vital to ensure a smooth selling process. The more that you involve the tenant and keep them up to date with what is happening the more engaged they will be with the process and the more likely they will be to comply with anything that you ask of them. A happy tenant will make for a better sale for all parties involved both you as a seller and the buyer who will be less likely to change their mind and pull out of the sale.
There are some disadvantage of selling your house tenanted, most have already been touched upon;
It is always worth weighing up the advantages and disadvantages to find the best solution for you.
The alternative to selling the property tenanted is selling it with vacant possession. This involves evicting the tenant first which can be a tricky process in itself. For a full guide on selling your rental property with vacant possession you can read our article here.
In the current climate of anti-landlord legislation and tough economic conditions it is easy to see why more landlords are choosing to exit rather than enter the private rental market.
If you got into being a landlord as your retirement plan or just by accident you are forgiven if the renters reform bill is the final straw that has broken the camel’s back. If you either don’t want to evict your tenant because they have been model tenants or don’t want to go through the time consuming and stressful experience of evicting a not so model one through the courts then selling your property tenanted is certainly a viable option and possibly the best depending on your circumstances. Whether you have a compliant tenant that pays their rent on time or one that is in arrears you have options available.
If you want to know how much you could be offered for your tenanted property you can use our cash offer calculator to find out.
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