Problems Selling a Rental Property With Tenants In Situ During The Sale
Selling a rental property with tenants in situ can be difficult in any circumstance because it can add cost (sometimes in the form of losses), risk and complication throughout the process to both the buyer and the seller.
For home owners selling property while tenants are in situ, the potential for problems range from showing interested parties around the property without infringing a helpful tenant’s legal right to ‘quiet enjoyment of the property’; to trying to arrange access to the property with ‘unhelpful‘ tenants; to ‘bad’ tenants putting buyers off through sabotage, unkempt surroundings and resentment; to collapsed sales through problems with mortgage conditions; to the compliance of any tenant to fulfil any state of occupancy at completion agreed between the buyer and seller.
In other words, some buyers might want the tenants to stay while other buyers want them to leave. They can refuse to do either. It’s a risky business.
Added to all that, with the legal implication tenancy types have on eviction options and thereby sales options it’s easy to understand why more sales can fall through selling a property with a sitting tenant and why property with tenants in situ can be difficult to sell.
Problems Selling A Rental Property With No Sitting Tenants
Selling a rental property while it is empty eliminates a lot of complications in selling the house with sitting tenants and opens the market to private buyers who need a residential mortgage
HOWEVER, empty property increases the risk of unlawful occupation, property damage (deliberate or otherwise) and insurance cover/costs ESPECIALLY IF A PROPERTY TAKES A LONG TIME TO SELL.
It also means a loss of income (rent), increased expenses (utility bills, insurance) and liability (council tax) for a potentially significant period of time.
UK Tax Changes Affecting The Sale of Rental properties with Sitting Tenants
Selling a property with sitting tenants can be advantageous if the tenants are good tenants, the buyer also wants to rent the property and IF the buy-to-let market is buoyant.
Unfortunately for sellers who would like to sell to their property with tenants in situ, recent changes in UK tax including an extra 3% stamp duty for 2nd property purchases and a reduction in Mortgage Interest Rate tax relief, meaning investors will not be able to deduct all of their mortgage interest costs before paying tax on their profits, have already negatively affected the popularity of the buy-to-let market as reported by Sam Meadows in The Telegraph, 17 AUGUST 2017
Punitive tax relief and stamp duty measures introduced by former chancellor George Osborne have made the buy-to-let market less lucrative for landlords and levels of borrowing are falling. Industry figures reveal buy-to-let lending fell by 23pc over the past months, although some lenders, such as Nationwide, reported falls of more than 50pc year on year.
Some landlords are considering abandoning the market altogether, with one in five planning to sell up within the next five years, according to the Residential Landlord Association.
Added to that regulatory changes that make it tougher to qualify for mortgages so while buy to let is still an attractive proposition for some cash buyers, it is far less so for people who need to lend money to buy their rental properties so the market is considerable smaller than it has been.
For more information, see articles such as This Is Money’s ‘The death of dinner party buy-to-let… and why the easy gains from property have gone‘
Subtenants are tenants of a tenant (the mesne tenant). Whether a subtenancy is legal or not will depend on a number of factors including the tenancy contract between the mesne tenant and the property owner (the head landlord) and whether the head landlord has approved the sublet.
Even if a sublet is illegal, the subtenant still has legal protection from their tenancy agreement with the mesne tenant.
The head landlord cannot cancel a subtenancy or evict a subtenant while the mesne tenancy is still in place because the head landlords has no legal relationship with the subtenant.
The head landlord can start possession proceedings to evict a mesne tenant if they have broken a term in their tenancy contract but they must follow specific legal processes that change depending on the type of tenancy agreement. Once the mesne tenant is evicted, the head landlord can vacate their property without requiring additional evictions for subtenants though.
If a mesne tenant surrenders their tenancy and the landlord accepts the surrender, subtenants become tenants and are protected by tenant’s rights.
For more information on subletting including the rights of subtenants and landlords see – https://www.citizensadvice.org.uk/housing/renting-a-home/subletting-and-lodging/subletting/
Ways Property is Sublet by Tenants
It is understandable that many landlords refer to anyone other than the tenant or the tenant’s family – i.e. someone that lives in their property but pays rent to the tenant rather than themselves – as a subtenant. Legally however, different types of ‘subtenants‘ have different legal definitions and protection which in turn have different legal processes that have to be followed so it is important to differentiate between some types of ‘subtenancy‘.
Q: When is a subtenant not a subtenant? A: When it’s a lodger or it complies with the ’90 Day Rule’ or is one of more than 3 unrelated occupants.
Subletting the Entire Home
Regulated tenancies and assured tenancies have have long-term tenancy rights and strong protection against being evicted. A regulated tenancy is a long-term tenancy with a private landlord, probably started before 15 January 1989. An assured tenancy is a long-term tenancy with a private landlord, probably started between 1989 – 1997.
Regulated tenancies and assured tenancies have rules to keep rent reasonable. Tenants that benefit from regulated rents sometime sublet their home and charge their subtenants market rents which can be considerably more than than they pay their landlord.
The main legal definition comes from whether the tenant lives in the property with the subtenant and whether the tenant is able to access any room in the house.
Some tenancy agreements allow lodgers (but not the legal definition of subtenants) by the nature of the tenancy contract however most private tenancies started since 28 February 1997 are assured short hold tenancies which can either rule out lodging completely or require the landlord’s approval.
Landlords sometime allow good tenants who would otherwise not be able to afford to stay in a property take-in a lodger to share household costs – e.g. after a relationship breakdown or a change in income/outgoings.
Some of the problems that can arise for the property owner includes:
- the landlord’s tenant refuses to be accountable for damage to the property caused by the tenant’s lodger
- the lodger expects the landlord to return a deposit paid to the tenant
- a lodger refuses to leave a property when requested by a landlord because their contract is with the tenant
- a tenant takes in multiple lodgers making the property qualify for a House of Multiple Occupancy (HMO) status
For more information on lodgers and implications to landlords, see http://www.lodgersite.com/
Since the rise in popularity of home based holiday accommodation directory sites like Air BnB and tenant’s options to advertise privately and cheaply on social media and other internet streams, the attraction of short term rental rates being significantly higher than long term rent rates, some tenants rent out part of their home or all of their home for short holiday lets.
Subletting as a holiday let is more common where holiday accommodation prices are high and in London there are approximately 34,000 holiday lets available through Airbnb alone. Professional mesne tenants often have several properties listed on Air BnB
House Of Multiple Occupation (HMO) / House Shares
A house of multiple occupation is a property rented out by at least 3 people who are not from 1 household who share facilities like the bathroom and kitchen. It’s sometimes called a ‘house share’ and it requires a special licence from the local council. Renting a property per room is generally more profitable than renting a property as a private residence and ‘professional mesne tenants’ – i.e. people who make a living from subletting rooms at a higher price that they pay for the whole property – often rent more than one property at a time.
If a sublet qualifies the property as a HMO but it is not licensed, even if the sublet is illegal and the landlord does not know about it, they can still face penalties for allowing their property to become a HMO and failing to meet safety standards.
Selling A Rental Property With Vacant Possession
As described in the information above, there are many factors to consider when selling a rental property including who to sell to, when to sell, market conditions, property condition, legislation, tenancy types, the rights of sitting tenants, legal processes and schedule.
You you should always get legal advice before taking any attempt to vacate a property of tenants or subtenants if you want to sell a rental property with vacant possession on completion.
National Residential specialise in managing the hassles and complications of selling rental properties. We have property investors who are looking for buy to let property and we are expert at negotiating with sitting tenants to find a solution that benefits everyone. We also have a team of in-house lawyers who specialise in housing laws and the rights and responsibilities of tenants to ensure any notice or proceeding is performed correctly and according to law.
Their service and all associate costs are included free of charge in our 28 Day Fixed Price sale option. Nor are there are any estate agent fees so the sale price we agree before we sell your property for the best price we can is the amount of money you will receive.
Our 28 day auction sale format allows you to dictate your schedule and us to ensure your time without the income of a rental property but the with the liabilities of owning empty property is kept to a minimum.
Our expertise in these proceedings and our rigorous buyer approval process and bidders’ deposit means that the sale is much less likely to fall through due to complications and/or withdrawn offers.
Added to these benefits, our 28 Fixed Price Sale provides a cash advance option once we have reached the target sale price so you do not have to wait for the sale to complete to receive any funds from the sale.
To find out how National Residential can help you to sell your rental property (with or without sitting tenants) faster, please use our callback form to leave you details and we will phone you back. Alternatively, phone us on 0800 612 8659 (24/7) and we will phone you back ASAP in office hours.
All calls are confidential, we will not pass on your details to any 3rd party , there is no obligation to use our services as a result of the call and we will not try to pressurise you into using our services if you are not sure. There are no fees or costs if you choose to use our services and we fail to find a buyer at the agreed price.
ALSO: National Residential CEO David Coughlin has vast experience in buying/selling property and developing property projects. National Residential specialise in selling Buy To Let property with minimum disruption to rental income. For anyone wanting to move their investment away from rental into other types of property projects: as well as selling your BTL property for the best price, National Residential are pleased to announce our new Joint Venture funding opportunities for anyone planning to re-invest their capital in property development. Please see Joint Venture – Property Development Funding