When purchasing a buy-to-let property, prospective landlords are sometimes offered opportunities to acquire spaces with ‘tenants in situ’. Essentially, this means that the tenant currently living at the property will stay in place as the property is sold, and become the tenant of the new investor or owner.

Around 4.4 million households were privately rented in England in 2021 and tenancy periods have increased by 20.3% throughout the UK in the last two decades. As such, the need for selling a property with long-term tenants in situ is a priority for many buy-to-let owners looking to sell in 2022.

If you’re looking to sell your current property with tenants, but aren’t sure of the long term implications, continue reading. This guide will lead you through the processes and best practices for selling a property with tenants in situ.

We will also discuss the rights that tenants have during in-situ sales, so that everyone knows what to expect when it comes to accepting viewings, and starting relationships with new landlords.

What does ‘tenant in situ’ mean?

A tenant in situ, otherwise known as a ‘sitting tenant’, is a person who is already renting a property that their landlord wishes to sell. If the tenant has an ongoing contract or agreement with their landlord, they retain the right to live in the property when it changes hands.

What does selling a house with a tenant in situ mean?

Selling with tenants in situ, (or selling with sitting tenants), means your property classifies as one ‘without vacant possession’.

Houses sold without vacant possession keep furniture and any other items in the property once ownership has been transferred. The original tenancy agreement, including rent and deposits, should also be transferred to new landlords after purchase.

If you’ve got a rental that you decide to sell, sitting tenants can be a worry. However, a recent study found that completing a rental property investment without having tenants ready to move in costs landlords an average of £2,000.

For prospective buyers who are also landlords, purchasing a ready-made let complete with tenants and a steady flow of rent is a huge bonus.

Is it hard to sell a house with tenants in situ?

No it is not hard to sell a house with tenants in situ, infact if you’re looking to sell a house to an existing landlord or someone looking to get their foot in the door for owning rental properties, your property will actually be attractive to potential buyers. With reliable sitting tenants already in place, the property may be easier to sell, as buyers won’t have to market the property and find someone to rent it.

Landlords purchasing buy-to-lets are often more experienced buyers and therefore selling a tenanted investment is usually an easier transaction to process. Investment sales tend to conclude faster as they are often more information-based purchases than emotion-based purchases.

Essentially, if you're selling your property with great, long-term sitting tenants, it can actually be easier to secure a fast sale to a fellow landlord.

How does a tenant in situ affect property value?

In a post-pandemic market, the average length of time for a property to sell is just over two months, mostly due to the stamp duty holiday delays.

Selling could take a lot longer depending on the type of property you own, its location and the price. Houses with sitting tenants sold at auction for up to 75%-85% of their vacant value in 2021.

Selling your property empty might give you a greater chance of getting the asking price, but it also means you’ll need to cover the mortgage repayments without the help of any rental income. The longer the property is empty, the more payments you’ll need to cover and the greater the risk of it being broken into or vandalised.

Pros and Cons of selling with tenants in situ

Pros of selling with tenants in situ

• Cost-effective: No cleaning between tenants, storage, furniture replacement, new contracts to draw up (initially) etc
• Efficient: No need to give lengthy notices of eviction
• Guaranteed income: Rent supplied from day 1
• Prior vetting: New landlords are given access to the sitting tenant’s full rental history — potential buyers are more likely to buy a property with tenants in situ if they’ve proven trustworthy in the years prior
• Reduced financial loss: Rental properties can take several months to sell, resulting in a loss of income over an empty property. Selling a house with sitting tenants guarantees equity for the current landlord until the sale completes

Cons of selling with tenants in situ

• Sales can be heavily influenced by the tenant: A poor relationship with your tenant could result in their refusal to allow viewings of the property and hold up sales proceedings
• Restrictive market: Your potential pool of buyers could be restricted to just other landlords
• Admin requirements: Whoever you sell to, there’s a certain amount of admin you’ll need to complete, including Right to Rent documents, gas and electrical safety certificates, your tenant’s tenancy agreement, and inventories

The tenant’s rights

Sitting tenants, like all tenants, have rights that are designed to protect them through. Key rights of the tenant include:

• Rent stays the same in keeping with the original tenancy agreement
• Continuing to live in the property undisturbed by new owner
• Minimum 24 hours notice is required before viewings
• Deposits are to be held in a protection scheme
• The right to know the identity of the new landlord — landlords can be fined if they fail to do so within 21 days of request to meet
• The right to have a written agreement for fixed-term tenancies of more than 3 years
• As of June 1st 2019, the Tenant Fees Act states that a sitting tenant does not have to pay fees when changing landlords. Visit GOV.UK for more information.

Can a tenant refuse viewings?

Yes a tenant can refuse viewings, unless there is a term in your tenancy agreement that allows you to schedule viewings during the last month of a tenancy, your sitting tenants are entitled to refuse any agent or prospective buyer’s access to the property.

Can you remove a tenant in situ?

When purchasing a rental property, new landlords take on the existing Assured Shorthold Tenancy (AST) and are bound by the terms and conditions of the original tenancy agreement.

From the seller’s perspective: if your original tenancy agreement was an AST, you will be entitled to evict tenants by serving a Section 21 notice. Due to the pandemic, section 21 notice periods have changed, meaning you must give at least four months’ notice to remove a tenant and regain possession of a property.

Can you sell to your tenants?

Yes you can sell to your tenants. Always inform sitting tenants of your intention to sell before putting your property on the market — and explain your reasons for doing so.

Often, it can be a good idea to offer your existing tenants first refusal on buying your rental property. Private Rented Sector (PRS) tenants don’t have a right to buy a rental property, but if they’re able to afford to do so, it can be beneficial for them, and for you as their landlord.

Can you use a normal estate agent to sell property with tenants in situ?

Yes, you can use a normal estate agent to sell a property with a tenant in situ, but they will need to make this clear to any prospective buyers. If a landlord purchases a property with the tenants in situ, there’s technically no need to enlist an estate agent to advertise it on the rental market. This saves the cost of drafting up new paperwork.

However, industry professionals will give you essential insight to current property markets in your area. Consulting estate agents and taking advantage of their resources will put you in a better position to make a sale that not only fulfils your goals, but satisfies both your buyer’s and your tenant’s needs.

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What to consider before selling a property with tenants in situ

When it comes to selling with tenants in situ, it’s important to view your property from the buyer’s point of view. Contact a solicitor or conveyancing firm to help in due diligence and quality assurance.

Consider the following points before selling a property with tenants in situ and actively looking for your buyer — being prepared makes for a smoother process and boosts the potential for a lucrative sale.

• Provide accurate EPC ratings and gas safety certificates
• Update the property’s Electrical Installation Condition Report (EICR)
• Carry out Health & Safety testing of smoke and carbon monoxide alarms
• Compile property condition reports and inventory
• Organise essential paperwork, including tenant rent payment history, deposit amounts and tenancy agreements

How to sell with tenants in situ: step-by-step

1. Inform your tenants you are looking to sell.
2. Market your property though the relevant channels using an estate agent.
3. Once a buyer is found, a solicitor should be appointed to transfer the contracts.
4. The deposit should be transferred before the new buyer registers for the scheme the deposit was initially paid under.
5. The new landlord must next notify tenants of changes to comply with Section 3 of the Landlord and Tenant Act 1985.
6. The tenant should receive new landlord details, new rent amounts, contract length and contact information in writing through a Section 48 notice.
7. By this point, you have sold your home and the property and rental agreement is no longer your responsibility!

There are pros and cons to buying a property with tenants in situ and the right option for you will depend on your personal circumstances.

If you do wish to sell with a sitting tenant, be sure to carry out due diligence and find the correct resources to help protect you, your investment, and your prospective tenants.