For most homeowners, selling property is a fairly well chartered process. If you're a landlord however, things can get a little complicated. The more parties involved in a transaction, the greater the potential for problems - and for a landlord looking to sell their tenanted property, this can be a major concern.

In this article, we breakdown the process of selling with sitting tenants, as well as the advantages and disadvantages of doing so.

What is a sitting tenant?

A sitting tenant is the person(s) living in a property you are currently renting out. If you're a landlord and you decide to sell your rented property, along with its current tenants, to a buyer or investor, this is what's known as selling with sitting tenants. A successful sale would see the tenants remain in residence under the new landlord or investor.

What does sitting tenant mean?

Sitting tenants and tenants in situ are two terms that are often used to describe residents who remain in place during the purchase or sale of an investment property. Strictly speaking however, they refer to two different types of tenancy agreements.

Tenants in situ: If the tenant began renting the property after 1989, or has signed a new tenancy agreement, they likely signed an Assured Shorthold Tenancy (AST) agreement. This means that their landlord has the right to evict them from the property under a Section 21 notice. These tenants, who represent the majority of those renting in the UK, are 'tenants in situ'.

Sitting Tenants: The term 'sitting tenant' on the other hand, refers to a resident in an existing tenancy agreement made before 1989. They are a regulated tenant, and have what's known as an assured tenancy - in other words, they have the security of tenure, the right to remain in the same property thanks to the Rent Act of 1977.

Since the decline of Rent Act tenancies and the rise of Assured Shorthold Tenancies, the term 'sitting tenants' has become synonymous with 'tenants in situ'.

Can I sell my property with a sitting tenant?

As with any buy-to-let property, you can sell a property with a tenant in situ. However, there are several factors you will need to consider before even thinking of putting the property on the market.

Factors to consider before selling a tenanted property

Your relationship with your tenants

If you're thinking of selling your tenanted property, a good relationship with your tenants will go a long way in helping things run smoothly. That's why when it comes to talking to your tenants about your intentions, it's essential that you communicate the matter with both patience and brevity. Reassure them that you’re only seeking an investor to take on the tenancy.

Your property's condition and compliance with regulations

Your property simply will not sell unless its condition is in good order. Some issues may be liable to the tenant. Others, to yourself. Remember to consult the terms of your tenancy in your AST document. For simple matters, like overgrown gardens and dirty kitchens, a frank conversation with your tenant may be enough to resolve the issue.

Another factor you'll need to consider is whether your property complies with current legislation. Buyers avoid properties with red flags that suggest the property is not operating within the law. Frequent issues for landlords include outdated EPCs (Energy Performance Certificates) and EICRs (Electrical Installation Condition Reports). With regards to legalities concerning tenants, this extends to their deposits. Are they protected in an accredited deposit protection scheme? If they're not, buyers will be less likely to purchase your property.

Your property's rental yield

Properties with an attractive rental income garner greater interest from potential buyers. Long-term tenants often benefit from much lower rent than other tenanted properties in the country. You may want to speak with your existing tenants about raising their rent in order to compete with other properties with high rental yields on the market.

How do you sell with sitting tenants?

1. Check what type of tenancy agreement you have

First and foremost, you need to check the type of agreement you have with your current tenants. It’s an important detail - your contract directly affects the amount of power you have should any problems surface between you and your tenants. AST agreements tend to include a Section 21 notice that gives you the power to evict at relatively short-term notice. With tenants that have lived at your property since before 1989, it’s much more difficult.

2. Consider your property and situation

While selling your property might feel like the right thing to do at the time, it's important to consider your circumstances.

By selling your tenanted property, you’re significantly narrowing your market. You will no longer receive any additional income. What's more, these types of properties can take a lot longer to sell.

Selling with vacant possession (evicting your tenants first) is another option. Viewings can be arranged as soon as possible, without having to work around your tenant's schedules. This means you'll also have time and space to make repairs, should your property need them. On the day of sale, the house will be empty, allowing the new owner to move in as soon as the sale is complete.

However, selling with vacant possession does have a significant downside. Without supplementary income from your tenants, costs such as monthly mortgage repayments can begin to mount up, especially if your property stays on market for longer than expected.

3. Inform tenants of intentions

If you do indeed intend to sell your property with sitting tenants, you will need to inform them of your decision. Discuss your plans and negotiate where needed. If you suspect their rental yield may affect your property’s performance on the market, now is the time to commence a dialogue. Use this time to register any concerns about cleanliness to maximise your property's marketability.

Again, your main priority should be assuring tenants that little will change under the new ownership - it’s just a new landlord.

4. Look for commercial estate agents to put your property on the market

Your next task is to hire an estate agent who is experienced in selling commercial and buy-to-let properties. Estate agent fees for commercial properties tend to be higher than those for residential properties, so make sure you read their quotes carefully.

Once you have instructed your chosen estate agent, they will take pictures of your property and draw up a floor plan. Once you're happy with everything, they will put your home on the market and upload listings to all the major property portals. Your property's online description must state that it comes with sitting tenants.

5. Arrange house viewings through estate agent

Once your listing starts receiving interest, your estate agent will arrange house viewings with potential buyers. You need to relay these details directly to tenants in order to ensure the house is tidy and available for inspection.

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6. Hire a experienced conveyancer

Once you've agreed a sale price with an eager buyer, you will need to hire a reliable conveyancing solicitor who has experience in these types of transactions. Conveyancers ensure that all the legal aspects of sale are met. They will draw up a contract that permits the sale of your property, along with its sitting tenants. This aspect is very important - most standard contracts specify vacant possession as a necessity.

7. Provide references, credit checks, and other proof that tenant pays on time

Buyers will almost certainly ask for proof that your current tenants are solvent (able to pay rent on time and in full). Be prepared to provide this information as soon as possible to ensure the sale runs as smoothly as possible. They may wish to check that the sitting tenant's rent is up to date with other properties in the area.

You will also need to provide all relevant certificates and information, including a valid gas safety certificate, an Electrical Installation Condition Report and an Energy Performance Certificate. These too, must be up-to-date and in full.

8. Arrange continued protection of tenant’s deposit

A key part of the selling process is ensuring the continued protection of the deposit of tenants. Usually, the new owner of property will need to apply to reprotect the deposit in a government-backed scheme. This is essential if they are buying a house in England and Wales.

9. Exchange contracts

Once contracts have been exchanged, you will need to transfer the tenancy agreement to the property's new owner. Generally speaking, contract terms and rental fees remain the same until the tenant's fixed term is concluded. Once the term is over, the contract can be altered with the tenant's consent.

With the tenancy agreement in place, the tenant has legal right to remain in property until it is sold. If the buyer does not want to rent out property they can evict tenant once they have acquired the property.

10. Complete sale

On the day of completion, the buyer's conveyancer will release purchase funds to your conveyancer, who will then subtract outstanding fees and transfer the leftover amount to your account.

What happens to the tenant’s deposit?

If you're selling a property with a tenant in situ, you need to ensure the continued protection of the your tenant's deposit.

If you're the property buyer, you need to check that the deposit with the current landlord was, and is, protected. Depending on the scheme where the deposit is held, it will need unprotecting and then re-protecting under your new ownership.

There are three types of government-backed deposit protection schemes available in the UK:

• Deposit Protection Service
• MyDeposits
• Tenancy Deposit Scheme

All of these schemes offer you two options for protection:

• Custodial scheme: Where the deposit is held for free
• Insured scheme: Where you or the agent holds the deposit and you pay the scheme to insure it

Is it better to sell a house with or without tenants?

Ultimately, there's benefits to selling a property with, or without sitting tenants. The right decision depends on your financial position, the condition of the property, the condition of the market, and of course, your current tenants.

Advantages of selling with sitting tenants

• You continue to receive rental payments until the sale is finalised
• Selling a vacant property means there's a chance for the property to either fall into disrepair or be vandalised
• You don't need to pay significant fees such as monthly mortgage repayments or council tax
• No set-up costs - you have already procured tenants to sell your property with
• Your tenants have already been vetted for potential problems

Disadvantages of selling with sitting tenants

• You're significantly narrowing your market and potential for long-term income
• Rental property tends to take a lot longer to sell than residential property
• If the condition of your property is not up to scratch, it won't attract buyers
• A lot of potentially difficult communication is required between you and current tenants
• It's a lot harder to sell a property with tenants who have lived there since 1989

How much does a sitting tenant devalue a property?

Every situation is unique, but sitting tenants tend to devalue properties by a significant sum.

A sitting tenant living under an Assured Shorthold Tenancy agreement or periodic tenancy could devalue your property by 20 to 25 %.

A sitting tenant with a regulated or assured tenancy however, can devalue your property by a whopping 30 - 45%. Tenants like this may be able to live at the property indefinitely, meaning the new owners can never move in.

What is selling with vacant possession?

By selling with vacant possession, you, the landlord, evict your tenants before putting your property on the market. An empty property tends to sell for more, but there are some downsides. You will have to pay council tax and any outstanding monthly mortgage repayments. What's more, an unsupervised property is vulnerable to both disrepair and vandalism.

Can a sitting tenant be evicted?

Yes a sitting tenant can be evicted, but this depends on the type of tenancy agreement agreed.

If the sitting tenant signed a regulated tenancy, they may have the security of tenure. This means they may retain the right to remain in the property indefinitely.

If the sitting tenant signed a periodic or AST agreement, the landlord has the right to evict the tenant under a Section 21 notice.

Can a sitting tenant buy the property?

Sitting tenants don’t usually have the right to buy private property from the landlord. The only time they have the right is if the property is owned by the local authority.

However, the landlord could offer the tenants the opportunity to purchase the property. There are multiple benefits to this:

• The landlord saves money on estate agent fees, as they have already found a suitable buyer to purchase the property.
• Properties with sitting tenants are not only harder to sell, but sell for a lot less than residential properties. By selling your property to your tenants, you can sell for more.

Unfortunately, this decision rests solely on the tenant. They may not actually want to purchase the property. Even if they did, they may be unable to afford it. Tenants with poor credit ratings will struggle finding a suitable mortgage.