A guide to buying a property with tenants already in situ

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14 May 2019

A guide to buying a property to let with tenants already in situ

Author: Grace Watson

If you’ve bought, inherited or taken ownership of a property with tenants in situ, you might be wondering whether or not to continue running it as a buy-to-let. We run through the considerations you should remember and the steps to take in order to ensure a smooth and legal transition.

 

What are the pros of taking on a property with tenants in situ?

  1. Rental income could achieved from the word ‘go’

One of the key benefits of taking on a property with sitting tenants is that you have the opportunity to receive rental income from day one. You could also be able to yield a personal income from property if the rent is higher than the costs associated with owning and maintaining the property, making it a savvy investment plan.

The costs involved in managing a rental property include:

  • Any mortgage/loan repayments
  • Regular maintenance and upkeep
  • Utilities you might be liable for (such as ground rent and service charges)
  • Contributing to an allowance for things like income voids and tax.

 

  1. It is ready to let, legally

Another key benefit is that the property should already be let with legalities in place (i.e. the previous owners should have met all the health and safety requirements, so you don’t have to). This means:

  • Alarms for smoke, fire and carbon monoxide (if appropriate) should already be in place, as well as any required fire doors and extinguishers;
  • Gas and electrical safety checks should already have been carried out, and valid certificates passed on to you via your solicitors;
  • The general condition of the property should pass a local housing officers’ Housing Health and Safety Rating system, ensuring a decent standard of living for the tenants.

 

  1. There’s potentially no need to refurbish right away

A definite plus of purchasing a buy-to-let with tenants in situ is that you are unlikely to have any immediate need to spend money on refurbishing the property. If the sitting tenants are happy with their current living conditions and you continue to withhold them to a good standard, your decision to buy an investment property with tenants in situ could prove to be even more convenient.

You might decide that you want to refresh the décor and contents, but the transfer of sitting tenants means you don’t have to do it right away. If you bought a property with vacant possession, you would almost certainly have the flexibility and benefit of time to spend on getting it ready to let: décor, fixtures and furnishings, health and safety measures, and obtaining all necessary certification.

So there are lots of pros, but here are some cons:

  1. Not everything might be above board

The biggest con of taking on or buying a property with tenants already living in it is taking on the risk that things might not be up to scratch. If the previous owner was not letting the property entirely legally, you might have to spend some time and money putting things right – and that’s not always easy to do when the property is occupied. Also, be aware that if the local council finds out that the property isn’t being legally let before you’ve have a chance to put things right, you could be the one ending up being fined.

  1. Removing existing tenants

If you wish to re-let the property once you’ve taken it on, and before the existing tenancy has come to an end, you must serve at least two months’ notice to the sitting tenants. However, if they are within their initial 6-month period, you are unlikely to be able to serve notice until month four. It is worth considering these technicalities with your solicitor and/or the tenants’ letting agent or landlord during the completion process, so you have complete transparency over their position.

In light of these issues, it’s vital to ensure the potential cons are all things you should be able to check out before you take ownership.

 

What to find out before buying a property with tenants in it

If you’re buying a property with sitting tenants, make sure you’re using a solicitor or licenced conveyancer who has experience in handling this kind of transaction. These experts should know exactly what to ask and be able to anticipate potential pitfalls.

These are some of the important questions that need answering by the seller.

  • When were the last safety checks completed?
  • Does the property have valid energy performance, gas safety and electrical safety certificates?
  • What fire safety measures have been installed and are they fully functioning?
  • Does the property require a licence and what are the details?
  • Are there any local council restrictions that the seller is aware of about the type of let that is permitted?
  • Is the property furnished? If so, request confirmation that furnishings comply with match/fire resistance standards and ask for any warranties or guarantees.
  • Have all portable electrical items has Portable Appliance Test within the last 12 months?
  • Was a full inventory taken at the start of the tenancy? If not, request that one is carried out.
  • When did the current tenancy begin and what are the details?
  • Has the deposit been registered and with which scheme?
  • Has there been any problems with the tenant and has rent always been paid on time?
  • When is rent due and how is it paid?

If all of those questions are answered, you should be able to avoid the cons highlighted above.

 

Key things to remember:

The deposit

The various deposit protection schemes make it easy to transfer ownership of the deposit from the previous owners to yourself. You simply need to open an account with your chosen scheme provider, if you don’t already have one, and give the seller your landlord ID or reference number. They can then simply transfer the deposit to your account.

The tenancy agreement

Legally, a change of ownership of a property doesn’t affect a tenant’s right to be there, as per the original tenancy agreement they signed. Ideally, speak to the tenant and find out whether they’re happy to sign a new assured shorthold tenancy agreement with you.

If they don’t wish to do that, both you and the tenant are bound by the terms of the previous agreement they signed, which you need to check is legally compliant.

Of course, if you’re unhappy with the situation, you can wait until you’re able to legally give them notice to leave, but then you’ll need to find new tenants.

Dealing with the agent

If the property is let and managed by an agent, then leaving them in charge initially will make things a lot easier for you. This is because they will deal with the tenants on your behalf and may also be able to handle some of the other administration for you.

Once you own the property, you can then compare their service to other agents and change if you think it’s necessary, especially if they haven’t got client money protection or aren’t a member of a professional organisation.

Do be aware that you should sign a contract with them, so make sure you know what the minimum term is – i.e. how long you’re committing to using their services. If you know that you don’t want to continue using the agent, then you should inform the seller as soon as possible so that they can give notice as some agents may have charges that apply.

Do you need a new inventory?

There shouldn’t be any need to have a new inventory carried out, as you’re simply taking over the tenancy as it stands from the previous landlord. However, if you don’t think the original inventory clerk was very good, then it’s advisable to instruct an independent inventory clerk to carry one out as soon as you take ownership. Remember that you have to arrange access with the tenants.

 

Getting to know the existing tenants

Whether you’re continuing with an agent’s fully managed service or not, it’s always worth introducing yourself to the tenants. It’s worth doing so they know you’re now their landlord and to also let them know they can contact the agent if there’s anything they need – reiterating that nothing will change for them.

If you’re intending to manage the property yourself, then you should contact the tenants as soon as contracts have been exchanged and ideally arrange to meet. Be careful not to jump into property management without some way of keeping up with the legal side of lettings as it’s very easy to fall foul of the law. This means using a qualified agent or being a member of a local accreditation scheme or landlord association such as the Residential Landlord Association.

Essentially, buying a buy-to-let property as a going concern should be beneficial to you if you do your due diligence. Just make sure your legal representative does a thorough job of checking all the letting-specific requirements and, if you’re in any doubt about the quality of anything, have all of the appropriate checks and works carried out.

For more questions on whether buying a property with tenants in situ is right for you, call your local lettings experts today on 01344 985 870, or pop in to your local branch.

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