In the UK property market, the concept of a “tenant in situ” (also known as a sitting tenant) frequently comes up, particularly in buy-to-let transactions. A tenant in situ refers to a tenant who remains in the property after the sale is completed, meaning the new owner takes over as their landlord.
This arrangement can benefit both buyers and sellers, but it also comes with specific legal, financial, and operational implications that need to be considered carefully. Whether you are a buyer or a seller, it is essential to understand how tenant-in-situ situations work and what you need to be aware of to navigate such transactions successfully.
What Does Tenant in Situ Mean?
A “tenant in situ” refers to an existing tenant who lives in the property after it is sold. This means that the tenant’s rights are transferred to the new owner, and the buyer steps into the shoes of the previous landlord. Typically, this happens in buy-to-let properties, where the buyer aims to generate rental income from day one without finding a new tenant.
This scenario differs from a vacant possession sale, where the seller ensures the property is empty at the point of sale. With a tenant in situ, the buyer inherits the existing tenant, their rental agreement, and all associated responsibilities. Investors prefer properties with sitting tenants because they provide immediate cash flow, while residential buyers often avoid such properties if they intend to move in.
Simply put, a tenant in situ allows the property sale to proceed without disrupting the tenant’s occupancy. This arrangement benefits buyers looking for income-generating properties, but it can also come with challenges if the tenancy agreement or the tenant’s history presents complications.
What Are the Legal Implications of Buying a Property with a Tenant in Situ?
Purchasing a property with a tenant in situ involves specific legal responsibilities for the buyer. The most common tenancy agreements in the UK include the Assured Shorthold Tenancy (AST) and Protected Tenancies. An AST is the standard agreement for most residential tenancies, while protected tenancies, which are less common today, offer much more security for tenants and make it more challenging for landlords to regain possession of the property.
When buying with a tenant in situ, it is crucial to understand the tenant’s rights under their specific agreement. With an AST, the landlord has more flexibility to manage the tenancy or evict the tenant if necessary, subject to giving appropriate notice.
In contrast, protected tenants often have the right to remain in the property for life, and these tenancies may transfer to other family members upon the tenant’s death. Such complexities can make it difficult for the buyer to change the terms or reclaim the property for their use.
It’s essential to engage a solicitor who has experience dealing with tenant-in-situ cases, as they can guide you through key areas such as the rent payment history, property condition, and the tenant’s legal status. For instance, ensuring that the property complies with right-to-rent checks, has an EPC (Energy Performance Certificate), and adheres to other safety regulations (such as gas and electrical safety certificates) are critical factors that must be checked before purchasing.
Benefits of Buying a Property with a Tenant in Situ
One of the primary benefits of purchasing a property with a tenant in situ is that you start earning rental income immediately upon acquiring the property. As there is already a tenant in place, the buyer avoids the risks associated with void periods, which occur when a property is vacant between tenants. Void periods can significantly impact the rental yield of a property, making sitting tenants attractive to investors focused on cash flow.
Additionally, buying with a sitting tenant often allows investors to avoid upfront refurbishment costs. When purchasing a vacant property, there may be a need to redecorate, upgrade, or perform repairs before letting it out. With a tenant in situ, these expenses may already be covered, and the property can continue to generate income without disruption.
The buyer also can conduct thorough due diligence on the tenant’s payment history, ensuring that the tenant has consistently paid rent on time and is responsible for maintaining the property. This insight reduces the risk of taking on a problematic tenant, which is a significant advantage over finding a new one.
Another benefit is the potential for negotiating a more favourable purchase price. Sellers may price properties with sitting tenants slightly lower than vacant properties due to the limitations a sitting tenant imposes on the property’s marketability to non-investor buyers. This can give buyers a unique opportunity to purchase a valuable investment at a discounted price.
Challenges for Buyers When Purchasing a Property with a Tenant in Situ
Despite the potential benefits, buyers must also consider several challenges. One significant challenge is that the buyer inherits the existing tenancy agreement, which may limit their ability to change or reclaim the property. If the tenant has rent arrears or a history of disputes with the landlord, these issues will transfer to the new owner, who will have to address them.
Furthermore, if the tenancy is a protected tenancy, the buyer may find it nearly impossible to regain possession of the property without the tenant’s consent. Protected tenants often have the right to remain in the property for life, with rent control laws capping rent increases. This situation can limit the buyer’s flexibility in managing the property and might affect the property’s overall profitability.
Another consideration is the property’s compliance with legal requirements. Buyers must ensure the property has up-to-date safety certificates, including gas safety certificates, EPC, and electrical installation reports. If these are not in place, the buyer may face penalties or be required to make costly updates to bring the property into compliance.
What Are the Considerations for Sellers with Tenants in Situ?
For sellers, having a tenant in situ can make the property appealing to property investors, but it may also reduce the interest of other potential buyers, particularly those looking to occupy the property themselves. Investors are often the main target market for properties with sitting tenants, as they are primarily interested in the rental yield rather than immediate occupancy.
However, the presence of a sitting tenant can affect the property’s market value. Buyers may view a tenant in situ as a limitation, which can lower the sale price compared to a vacant property. Sellers should be transparent about the terms of the tenancy and provide full disclosure of the tenant’s rental payment history and any ongoing disputes.
To attract serious buyers, sellers should ensure that all relevant legal documents are in order, including tenancy agreements, deposit protection certificates, and safety certificates. Ensuring these documents are up to date will help streamline the conveyancing process and prevent delays.
Legal Documentation Required for Selling with a Tenant in Situ
When selling a property with a tenant in situ, sellers must provide several legal documents to ensure a smooth transaction. These documents include:
- Energy Performance Certificate (EPC): The EPC provides information on the property’s energy efficiency and is required for all property sales in the UK.
- Gas Safety Certificate: A valid gas safety certificate is necessary if the property uses gas appliances.
- Electrical Installation Condition Report (EICR): This document certifies that the electrical system is safe and up to current standards.
- Tenancy Agreement: The original tenancy agreement between the tenant and the seller should be provided to the buyer.
- Deposit Protection Certificate: Sellers must ensure that the tenant’s deposit is held in a government-approved scheme and that it is transferred to the new landlord upon completion of the sale.
Providing these documents ensures that the buyer can assume responsibility for the tenant without any legal issues and helps protect both parties in the transaction.
Tips for Buyers and Sellers: Key Points to Ensure a Smooth Process
To ensure a smooth sale or purchase of a property with a tenant in situ, both buyers and sellers should follow these key points:
- Hire an Experienced Solicitor: Having a solicitor who is familiar with tenant-in-situ transactions is essential for navigating the legal complexities involved.
- Perform Due Diligence: Buyers should carefully review the tenant’s payment history, tenancy agreement, and the property’s condition. Sellers should ensure that all legal documents are up to date and available for review.
- Clear Communication with the Tenant: Both parties should maintain open lines of communication with the tenant throughout the process, keeping them informed of the sale and any potential changes to their tenancy.
Can You Evict a Sitting Tenant?
Yes, you can evict a sitting tenant, but the process depends on the type of tenancy and the legal protections in place for that tenant.
- Assured Shorthold Tenancy (AST): If the tenant has an AST, which is the most common type of tenancy in the UK, the landlord can evict the tenant under certain conditions, usually through a Section 21 notice or Section 8 notice:
- Section 21: This notice can be served without providing a reason, but only after the fixed term of the tenancy has ended, or if a break clause is included in the agreement.
- Section 8: This is used when the tenant has breached the terms of the tenancy (e.g., rent arrears). The landlord must give specific reasons (grounds) for eviction in Section 8 notice.
- Protected Tenancy: If the tenant is under a Protected or Regulated Tenancy, eviction is much more difficult. These tenancies, often created before 1989, give tenants lifetime occupancy rights, and landlords can only evict under very limited and serious conditions. Even if the property is sold, the new landlord must respect these long-standing tenancy rights.
- Periodic Tenancy: If the tenant is in a periodic tenancy (where the lease has rolled over after a fixed-term AST), the landlord can issue a Section 21 notice, but must give at least two months’ notice.
In all cases, landlords must follow the legal eviction process, which includes giving proper notice and, if the tenant refuses to leave, obtaining a possession order from the court. Forceful eviction without a court order is illegal.
How Long Before a Tenant Becomes a Sitting Tenant?
The term “sitting tenant” typically refers to any tenant who is currently residing in a property that is being sold, with no break in their tenancy, and who continues to live there after the sale. There isn’t a fixed period after which a tenant formally becomes a “sitting tenant.” Instead, it’s a term used to describe tenants whose tenancy is ongoing at the point of sale, regardless of how long they’ve lived there.
However, for tenants to establish stronger legal rights and protections (like those found in protected or regulated tenancies), their specific type of agreement and how long they’ve lived in the property are important factors. In some cases, long-standing tenants (often over 20-30 years) may fall under older tenancy regulations, giving them more secure rights.
For modern tenancies, after a fixed-term tenancy (e.g., 12 months), many agreements automatically roll into periodic tenancies (month-to-month or week-to-week), where tenants retain all their rights but may have shorter notice periods for eviction.
Thus, while a tenant doesn’t gain formal “sitting tenant” status after 12 months, a tenant in a property beyond this period could still have significant legal rights depending on the tenancy agreement and local laws.
If you’re thinking about buying or selling with a sitting tenant, consulting a property solicitor is advisable to understand any specific legal implications involved.
Conclusion
Tenant-in-situ arrangements offer a unique opportunity for property investors to acquire income-generating properties with minimal disruption. However, these transactions come with specific legal and financial responsibilities.
Buyers and sellers alike should ensure they fully understand the implications of a sitting tenant and seek professional legal advice to navigate the complexities of the process. With the right approach, purchasing or selling a property with a tenant in situ can be a smooth and profitable experience.
What Are the FAQs About Tenant in Situ?
What is the difference between a sitting tenant and a new tenant?
When a property is sold, a sitting tenant is already living there, whereas a new tenant moves in after the sale is completed.
What are the risks of buying a property with a tenant in situ?
Risks include inheriting tenant disputes, rent arrears, and assuming responsibility for any issues with the tenant or property.
How does the Landlord and Tenant Act affect these transactions?
This act governs the rights of tenants and landlords, including rules around eviction and rent control, which can impact how the property is managed after the sale.
Can a buyer evict a sitting tenant after purchasing a property?
Eviction depends on the tenancy agreement and the tenant’s rights. Tenants under protected tenancies may have lifelong occupancy rights, while tenants with ASTs can be evicted following proper notice procedures.
What documents must be provided by the seller?
Sellers must provide several important documents when selling a property with a tenant in situ. These include the Energy Performance Certificate (EPC), a Gas Safety Certificate, an Electrical Installation Condition Report (EICR), the original tenancy agreement, and evidence of the tenant’s deposit being placed in a government-approved scheme.
