How much does a sitting tenant devalue a property?

Selling any sort of property comes with its fair share of challenges. There's a lot to get over the line before completion, from valuations, conveyancing, marketing and much more.

But selling a tenanted property often comes with an even bigger set of challenges. Many prospective buyers aren't interested in inheriting a bunch of tenants at the time of purchase, especially if they're looking to sell in the future. Not only that, you have to think about serving notices, arranging viewings and keeping things sweet with your tenants so the sale runs as smoothly as possible.

But how much does a sitting tenant devalue a property? Are there ways to increase your property's value, and even smoothen the sale process?

What is a sitting tenant?

A sitting tenant lives in a rented property the landlord wants to sell. If the landlord begins the selling process while the tenant still lives in the property, it's known as selling with a sitting tenant. If the tenanted property is sold, the new buyer would 'inherit' the sitting tenants and become their new landlord. This can also be referred to as 'tenants in situ'.

Lifetime sitting tenants have the right to live in the tenanted property until they die. The circumstances for this are rare, and usually for houses sold by the local council or government to a private landlord.

What are sitting tenants' rights?

Sitting tenants have legal rights to protect them if the landlord decides to sell the property they're living in. Firstly, the landlord can't evict any of the existing tenants unless they break the terms of their current rental agreement. The buyer also needs to be aware that any existing tenancy agreements come with the property as part of the sale, and the sitting tenants don't legally have to sign a new tenancy agreement if they don't want to. This means the new buyer needs to agree with the existing contract.

Tenancies signed before January 1989 are known as a regulated or assured tenancy. If the existing tenants have this kind of a tenancy agreement they may have more rights, including the right to live in the property indefinitely.

Once the seller and buyer have come to an agreement, the current landlord is legally obligated to give their tenants 24 hours written notice. The new landlord will also need to tell the tenants how they should pay monthly rent going forward.

Some landlords may let the sitting tenant buy the property before marketing to other prospective landlords, however they have no legal obligation to do so.

Refusing viewings as a sitting tenant

A sitting tenant is allowed to refuse viewings if it's down to an illness or other pressing issues, but they will eventually have to allow access to the property as per the terms of their tenancy agreement.

What are the landlord's rights?

A landlord has the right to serve the tenants a Section 21 notice. This lets them obtain possession of a tenanted property (under an assured shorthold tenancy agreement) even if the tenants don't breach the contract. Sometimes referred to as 'no fault' evictions, the tenants can be evicted without reason when the tenancy agreement ends, so long as the landlord gives them two months' notice.

However, in recent years there have been plans in the works to ban Section 21 notices. Prospective landlords may need to consider this if they're thinking about buying with tenants in situ in the future.

Landlords also have the right to change a tenancy agreement under the guidance of an independent rent officer. Every two years, the new landlord is legally allowed to arrange for a rent officer to assess whether they are getting fair rent from the sitting tenant. If they're advised to raise the rent, the tenancy agreement can be changed.

Selling a house with a sitting tenant

Selling a house with a sitting tenant may be more difficult than trying to sell a vacant property. Landlords must inform tenants in advance, as well as give them 24 hours notice before house viewings.

There are three possible ways a landlord can sell a tenanted property.

Selling through estate agents

Many landlords sell the residential property through an estate agent, preferably one with experience in selling tenanted properties. An experienced estate agent will be able to give accurate valuations so they can set a fair asking price for the property. They’ll also have valuable knowledge about the industry that will help you make the most from your investment. You have much more control over this kind of sale and can withdraw at any time if you change your mind.

The downside of selling a tenanted property through an estate agent is the length of the process. This route is often a lot slower, and most sales can take three to six months to go through. It's also important to remember the extra costs associated with estate agent fees.

If you're looking for an estate agent, you can use our Estate Agent Comparison Tool to explore which agents are best suited to your selling needs. It's completely free and easy to use!

Sell to a home buying company

If a landlord sells to a home buying company, chances are the process will be a lot faster and they'll take over all your landlord responsibilities. Landlords can now sell their properties in a matter of days or weeks through a house buying company by selling properties for a trade price in cash in return for a quick guaranteed sale.

You don't have to pay any estate agent, valuation or solicitor fees, and you don't have to serve your tenants notice because they can stay in the property. You also don't need to worry about the condition of the property, or if the sitting tenants are in rent arrears. However this does also mean you'll probably get a much lower house price.

Selling at auction

Selling at auction is another popular option: 38% of recent property auctions were buy-to-let investors. At an auction, landlords can find more buy-to-let investors who want to build a property portfolio quickly. Similarly to selling to a home buying company, this option will sell a tenanted property much more quickly than using an estate agent. In some cases the property will be sold within 28 days or less.

Going down this route may result in a cheaper sale because these potential buyers are often hunting for a bargain. You can set the reserve sale price to ensure a minimum price for your property, but once the final price is agreed, you don't have the right to pull out of the sale.

Buying a property with sitting tenants

Benefits of buying a property with sitting tenants

Though sitting tenants devalue a property in some ways, there are in fact some benefits to buying a tenanted property. For example, if you're looking for an investment property, buying a property where the current tenants remain living there immediately provides you with rental income. The tenants in situ may also be great tenants to work with. You could inherit respectful, reliable tenants that provide a great foundation to build a property portfolio.

Downside of buying a property with sitting tenants

Of course, there are also disadvantages to buying a house with a sitting tenant. Though how sitting tenants devalue a property is probably the greatest cause for concern, there may be other factors that put off potential buyers.

If the property isn't in great condition, or even non-compliant with the necessary safety or building regulations, it may be difficult to renovate or refurbish with tenants living in the property. You wouldn't encounter this issue with an empty property, which means if you wanted to sell the property on, it would be a lot quicker.

Other factors to check

It's useful to ask the seller for a copy of the existing tenancy agreement. Sitting tenants rights may vary depending on whether it's a fixed term tenancy agreement or regulated tenancy agreement, so it's good to be aware of what exactly you're inheriting with your purchase.

It's also good to check out the sitting tenants to see if they're reliable. Do they pay rent on time? Are they respectful of the property? Have there been any conflicts between them and the previous landlord during the tenancy?

How much does a sitting tenant devalue a property?

How much a sitting tenant devalues a property can vary depending on the type of tenancy agreement. Generally speaking, selling a property under a temporary tenancy agreement may devalue a property by anywhere between 20 and 25%. However, a regulated tenancy or assured tenancy means the sitting tenant has more rights, which causes the selling price to drop even further. Selling a property with a regulated tenant can devalue a property anywhere up to 40%, though it usually falls between the 30% and 40% mark.

Demand also has a big role to play. The demand for a rental property or tenanted property is much smaller than demand for a vacant property, especially if potential buyers aren't interested in becoming landlords and inheriting tenancy agreements. And with a smaller demand comes the risk of lower sale value.

The type of tenancy agreement signed with the sitting tenant will also impact the value of the property.

Assured shorthold tenancy

An assured shorthold tenancy agreement is a tenancy with a fixed end date, and the most popular type of agreement for residential property in England and Wales. Once the initial fixed term (usually set for six or 12 months) is up, the landlord only has to give two months notice before regaining possession of the property.

It was designed to give landlords and mortgage lenders more control about when a tenancy could end. A sitting tenant living under an assured shorthold tenancy might be unattractive to buyers initially, but once the tenancy ends they will move out and the new landlord will have a vacant property.

This is the simplest way to sell a property with tenants in situ because you can end the tenancy quickly and move straight onto selling. You do need to make sure you have registered any tenant deposit under a government protected tenancy deposit scheme within the first 30 days of the original tenancy. Failing to register the deposit can lead to significant delays and even end up in court.

At the start of the tenancy, you also need to make sure you have a valid electrical installation condition report, as well as a valid gas safety certificate and a carbon monoxide safety certificate.

Periodic tenancy

The agreement rolls into a periodic tenancy once the fixed term of the assured shorthold tenancy has passed. Landlords don't need to draw up a new rental agreement because the periodic tenancy stays legally valid until there's a change in rent.

Regulated or Assured tenancy (or protected, or rent act)

A regulated tenancy, otherwise known as assured, protected or rent act tenancy, gives sitting tenants the most rights. Under a rent act tenancy, the sitting tenant will have the right to remain living in the property indefinitely, up until they pass away. The landlord has no right to serve notice on the tenant to leave the property.

This type of tenancy is perhaps the least attractive to a buyer who doesn't want to take on the commitment of a sitting tenant because most buyers want the option to sell the property in the future. They also may decide the investment isn't worth the long-term cost of keeping a sitting tenant on. If it takes too long for the property to be vacated, they may not think it's worth the purchase.

Under regulated tenancies, the sitting tenant can also pass their tenancy onto a family member with the same tenants rights. It may also be more difficult to get a mortgage for a tenanted property as providers don't always want to lend to buyers looking for a rental property with a regulated tenancy. They want to be able to regain possession of the property if they need to, and under an assured or regulated tenancy this isn't a sure thing.

How to increase the value of a property with a sitting tenant

You've asked yourself, 'how much does a sitting tenant devalue a property?', but it's not all doom and gloom. There are in fact ways to increase the value of the property you're trying to sell.

For landlords with a bigger budget, you may be able to invest in some large renovations and extensions. Of course, these may have to be discussed with the tenants in situ, but if you can come to an agreement, this kind of work can seriously boost a property's value.

You could also make your property more sustainable by adding solar panels, double-glazed windows, or even a new boiler. It may be a large cost initially, but it's all about the return on investment.

Landlords selling a tenanted property with smaller budgets can still add value to their property. Something as simple as dash of paint, decorating the garden or installing some eco-friendly light bulbs and thermostats could add some real value.

Benefits of selling a tenanted property

While selling with tenants in situ can be tricky, it also presents some opportunities for sellers, especially in the current market.

Professional landlords often look for tenanted properties to buy as it helps avoid extra costs from having to find a new tenant with an empty property and a mortgage that needs paying with no rent coming in.

There is a dwindling supply of rental properties which has caused serious rent increases and forced many landlords to sell, or investors to buy before prices rise any higher. This has had an impact on tenants too. On average, 11 prospective tenants registered per property across 2022 in the UK, and rental yields are still outpacing the growth in house prices.

As the Cost of Living Crisis continues, many tenants have been unable to keep up with their monthly rent which has forced reliable, long-lasting tenants out of their homes. Any new tenant is a gamble for a landlord as they have no previous track record of paying rent on time or being generally easy to work with.

Evicting tenants and selling with vacant possession

Some landlords will be able to obtain vacant possession of the property, which means the property will be completely emptied (tenants and belongings included) by the completion date.

Selling with vacant possession is often the most desirable way to sell a property because it's completely ready to go for the next owner. You can also prepare your property marketing and don't have to worry about sitting tenants leaving the property untidy or messy. After all, a messy property will make it much harder to sell.

Summary: They're sitting, but you're still standing!

If you're trying to sell a house with a sitting tenant, it doesn't have to be all doom and gloom. Though a sitting tenant can devalue a property, there are plenty of ways to work around the issue and still sell your property for a decent price.

Going through estate agents, selling at auction, proposing to registered buy-to-let landlords, even adding value to your property through renovations. It may take more work to get the sale over the line, but it's certainly doable.

If you're looking for an instant property valuation, you can use our Online Valuation Tool today.