What Does Buying a House Chain Free Mean
When buying a house, the term “chain-free” may not sound important, but it actually carries significant weight when buying and selling homes. But what...
When you choose to sell a house with tenants occupying a property, you can either sell it vacant or sell it with the tenant still living in the property, which is known as tenant ‘in situ’. Of course, it may be that there is an investor out there who is in the market for a […]
13 December 2023
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When you choose to sell a house with tenants occupying a property, you can either sell it vacant or sell it with the tenant still living in the property, which is known as tenant ‘in situ’. Of course, it may be that there is an investor out there who is in the market for a property already with a tenant, however, it is worth bearing in mind that properties usually attract more interest if they are sold as vacant. Having a tenant ‘in situ’ can bring issues with gaining interest from buyers, viewings, and even price. Although it takes a little extra effort to sell with a tenant ‘in situ’, the sales process is not too different from a normal sale. In this article, we’ll delve into how to sell your rental property with a tenant ‘in situ’.
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Yes, you can sell a rental property with a tenant, but it’s essential to understand the legal implications and tenant rights, which will influence your decision to sell your property with or without a tenant.
There are some benefits to selling a property with a tenant. Firstly, your tenant will not have to move out, so you would potentially be avoiding any major disruption for them. It also means that there is less chance that you will lose income. If the tenant moves out before the house is sold, you, as the landlord, will still be responsible for mortgage payments, as well as utility bills, until the house is sold, even though you won’t be receiving rental income.
You can sell to another landlord or an individual buyer, but for each option, you will need to consider certain implications for both the seller and the tenant. Also, if you sell with a tenant, you are somewhat restricted to selling to another investor, rather than a wider selection of buyers, including first time buyers.
Selling to a fellow landlord may streamline the process, as they may appreciate the property’s income-generating potential and be more accommodating to a tenant in place. It also means your tenant won’t have to move out and you won’t lose any income during the sales process. Investors also tend to be more experienced buyers, so there is less chance of delays and challenges during the sales process.
Although technically you can sell your tenanted property to someone who isn’t a landlord, selling to an individual buyer can be more complex, as they may prefer a vacant property, which means you will then have to agree with your tenant to vacate the property, usually using a Section 21 notice. Clear communication and proper planning are crucial to navigate this situation. It is also likely to cost you more, as you will have a period of no rental income, whilst you will still be responsible for mortgage payments and utility bills.
Check your tenancy agreement first, as most state that tenants should accommodate viewings if reasonably requested. If this is not in your agreement, communicate with your tenant to reach an agreement, where possible. Otherwise, you will have to wait until the end of the notice period to conduct viewings. Coordinate viewings with the tenant, respecting their right to privacy and providing sufficient notice (landlords are required to give the tenant at least 24 hours’ notice before entering the property). Where possible, it might be an idea to arrange block viewings, where several viewings take place at once, as this will mean less disruption for your tenant. You will want your tenant to cooperate and ensure the house is presentable on viewing days, so incentives such as a partial reduction in rent as compensation for disruption and inconvenience may be of benefit in some cases. Open communication is key to ensuring a cooperative atmosphere.
Selling with a tenant in situ requires adherence to legal obligations and maintaining transparency throughout the process. This includes informing potential buyers about the existing tenancy.
Considerations include serving a Section 21 notice, which gives landlords with a shorthold tenancy agreement to claim their property back at any point, without there being any fault on the part of the tenant, managing the tenant’s deposit, ensuring the tenancy agreement aligns with the sales process, handling gaining access for viewings and understanding the legal obligations for notification. All landlords must put their tenants’ deposits in a government-backed tenancy deposit scheme, which enables you to then return what is owed back to the tenant when they leave.
Challenges may include tenant cooperation, unwillingness to leave the property, potential property condition issues, and buyer preferences for vacant properties, including an unwillingness to take over a tenancy they will not be able to end easily. If you decide to sell your rental property, first talk to your tenant and reassure them about the process. Good communication means they are likely to be more cooperative during the process. Addressing these challenges requires careful planning and communication.
Tax implications vary, and it’s crucial to understand potential capital gains tax and other obligations. Capital gains tax can be up to 28% of the difference between what you paid for the property and what you are selling it for, which will reduce your overall profit. If you have made any capital improvements to the property during the period in which you have owned it, you may be able to offset some of this against your tax bill. Seeking professional advice is recommended to navigate these complexities.
Penalties could arise from violating the terms of the existing tenancy agreement or failing to meet legal requirements. Other penalties include mortgage exit fees if you are ending the mortgage mid-term. Compliance is essential to avoid legal consequences and potential disputes.
From mortgages and insurance to viewings, offers, exchange and completion, our Buyers’ Guide will take you through everything, step by step, from start to finish.
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