If you buy a property that already has tenants, these are known as sitting tenants. In most cases, any agreement between the former landlord and the tenant will roll over to you. If the tenant has been resident since before 15th January 1989, it can prove very challenging to evict the tenant, increase rent, or take other actions. Otherwise, you will be bound by any tenancy agreement that is already in place, including if the tenant is under a protected tenancy.
There are many factors to take into account if you consider buying a property with a sitting tenant, and the first step should be to find out exactly what type of tenancy is in place.
What Is A Sitting Tenant?
Generally, a sitting tenant is a tenant that resides in a property when the landlord decides to sell. If there is an existing agreement in place, this will roll over to the new landlord. Some landlords like buying property with sitting tenants, because it offers guaranteed rental income, at least initially.
However, if you are considering such a move, you absolutely need to determine whether the tenant is under a protected tenancy, and you should get hold of a copy of the existing tenancy agreement, or at least determine the type of tenancy in place. While most tenants are now under Assured Shorthold Tenancy agreements, this is not the case with all tenants.
What Is A Protected Tenancy?
In the 1970s, the government introduced a host of regulations and legislation, designed to protect tenants. This legislation capped private rent and protected tenants from eviction. However, the new rules effectively prevented new investment in the private rental sector and The Housing Act 1988, which came into force in January 1989, sought to redress the balance and give some power back to landlords. However, those tenants that signed a tenancy between the 1977 and 1988 acts still enjoy prohibitive levels of protection.
Although nearly 30 years have passed since the rule changes, there were still more than 100,000 tenants that were considered protected, in 2012.
Protected Tenants’ Rights
Protected tenants have certain, strict rights. They have the right to quiet enjoyment, which means that they should be allowed to live in the property without disturbance. They also have the right to enjoy living in a property that is safe and in a decent state of repair.
Arguably the biggest stumbling block for a new landlord of protected tenants is that of “fair rent”. Protected tenants are entitled to pay a “fair rent” that is determined by the Rent Office. In most cases, the level of “fair rent” will be much lower than market rent, and landlords could find that they are losing as much as 50% of their potential monthly rental income.
Since 1999, landlords of protected tenants have only been able to increase rent by inflationary levels, and only ever two years, although there are exceptions where major renovations have been undertaken.
Another potentially crippling right that protected tenants enjoy is the right of succession. This means that, in some cases, when the original tenant passes away, the tenancy can be passed to a living relative that has resided in the property for some time. This right of succession only applies once, and the tenancy cannot be passed down to a third generation or third family member.
Section 21 Evictions
Protected tenants are not considered a blessing by most landlords. They have considerable rights when compared to other tenants and, what’s more, it is very difficult to evict them, even when a landlord has grounds other than a desire to increase rent. Section 21 evictions only count for tenants with an Assured Shorthold Tenancy agreement.
While evicting a protected tenant is more difficult than evicting an AST tenant, it may still be possible, but you will need grounds for the eviction. There are 10 discretionary cases for possession of the property, and 10 mandatory. All of these are listed on the government website: http://www.legislation.gov.uk/ukpga/1977/42/schedule/15
A discretionary eviction means that it is down to the discretion of the court as to whether a tenant will be evicted. They do not have to agree to the application. Discretionary cases include those where the tenant has broken their tenancy agreement and includes non-payment of rent. Even if the tenant has failed to pay rent, missed rent payments, or is consistently late in making payment, the court is not obliged to serve an eviction notice. Similarly, if the tenant has failed to keep the property in a decent state of repair, the court does not have to evict.
There are 10 mandatory eviction cases, but these are very specific and unlikely to apply in the vast majority of cases. Where one of these cases does apply, however, the court is obliged to serve an eviction notice and the landlord will be able to take possession of the property.
Buying Out The Tenant
If you own a property with a protected tenant, it is worth considering trying to buy them out. This essentially means offering them a cash sum to relinquish their tenancy. Consider that properties with protected tenants can sell for as little as 75% or even 50% of the property value, you can consider splitting the difference so that you both enjoy some benefit from the arrangement.
Bear in mind, however, that the tenant is under no obligation whatsoever to accept the offer, and they can refuse and continue to live as tenant in their home, if they choose to do so.
PDF Estates Ltd – 3 Free Months Of Full Landlord Services
If you are considering buying a property with sitting tenants, your first step should be to determine whether they are protected or assured tenants. Sitting tenants have more rights than assured tenants, and you will be heavily restricted with regards to the actions you can take once you take ownership of the property.
Alternatively, work with PDF Estates Ltd. We can source tenants and property. We can also conduct thorough checks on tenants, ensure that you meet the needs and regulatory requirements of any sitting tenants, ensure the timely transfer of the tenant’s deposit, and we can maximise your rental yield by eliminating tenancy void and maximising your returns. Call us on 020 3815 7952 or email firstname.lastname@example.org to discuss our property management services, or to ask any questions or queries about protected tenants and sitting tenants.