If you’re looking to buy a property, you may well come across the terms ‘sitting tenant’ or ‘tenant in situ’. If you’re wondering what these terms mean, you’ve come to the right place! Here we’ll go over what a sitting tenant is, what rights they have, and what to do if you’re looking to sell as well as buy with tenants in situ.
Let’s get started!
What is a sitting tenant?
In short, a sitting tenant is someone who is renting a property that the owner (their landlord) has decided to sell. If they have an ongoing agreement or contract with their landlord (the seller), the sitting tenant will retain the right to continue living in the property once the sale has been made.
It’s no secret that the amount of people renting in the UK is on the rise, and tenancy durations are increasing, too. This means that there’s an increased likelihood of coming across properties with tenants in situ, especially as some landlords are looking to sell up after the recent tax changes and the ongoing (but somewhat unwarranted) doom and gloom in the media over buy-to-let.
What happens if you’re the sitting tenant?
If you are the person renting the property, and your landlord informs you they’re going to sell, it can be an uncertain time. Being informed will remove some of that uncertainty, so it’s important for you to know where you stand and what your rights are as a sitting tenant.
Before we get into your rights, let’s look at the most common scenarios sitting tenants face in this situation:
No change
Often, rental properties will be sold to another landlord, which could mean that your tenancy will continue as it was with little to no change to you or your existing agreement. Obviously, you’ll have a new landlord, but everything else will stay as it is.
New tenancy agreement
As mentioned above, rentals are often sold between landlords, but that doesn’t automatically mean there’ll be no change to your existing tenancy agreement. The incoming landlord may well wish to tweak your contract, especially areas such as duration and the amount of rent you are expected to pay (although you will have rights to pay ‘fair rent’ - more on this later).
It’s also common for tenancy agreements to be renewed simply to reflect the change in ownership, even if the contents of the contract essentially remain the same.
Eviction
Naturally, this isn’t something you’ll want to hear, but it could happen, unfortunately. The buyer may want to put tenants of their own into the property or they might want to move in themselves.
Another reason for eviction may be that the purchaser sees untapped potential in the property and has plans to make significant changes which will require the building to be empty while renovation work takes place.
What rights do sitting tenants have?
When the buyer completes on the property, they will also take ownership of the tenancy agreement put in place by the previous landlord. In most instances, the tenancy will be an AST (Assured Shorthold Tenancy), which means the new landlord may have the right to evict the tenant from the property by issuing a Section 21 notice.
However, not all tenancies will be ASTs. If the renter in question entered into the tenancy before 1989 they will have a security of tenure, which means they retain the right to reside there under the Rent Act 1977.
This really is the true meaning of a sitting tenant, although the term has come to be used interchangeably with ‘tenant in situ’ over the years.
What about the landlord?
As touched upon above, tenants have a right to remain in the property for ‘fair rent’ if they took on the tenancy before 1989, but what rights will the new landlord have in this situation?
A landlord taking on a sitting tenant will have the right to review the fair rent every two years (or before if significant improvements have been made), but they won’t be able to conduct this review themselves. The review, instead, will be carried out by a rent officer.
Buying a property with sitting tenants
If you are looking to buy a property with tenants in situ, you can expect to pay considerably less for the house or flat in question. This can present a great opportunity for those who are willing and able to wait out the tenancy, as the property will jump back to market value once the current sitting tenant is no longer in situ.
The main issue buyers come up against when purchasing a property with tenants in situ is financing. Many lenders will be unwilling to lend on a property with sitting tenants, so a cash purchase may be your only option. That said, as this scenario is happening more frequently and lenders are competing against each other in the current buy-to-let market, things are changing.
Selling a property with tenants in situ
While it may seem like a complicated affair, selling a property with a sitting tenant is possible, and doesn’t need to be as much of a headache as it would first appear. This is especially true if you have a longstanding, happy relationship with your tenant.
The majority of tenants will respect your decision, even if they don’t like it, and allow you to proceed without incident. Of course, there will always be some who’ll make things difficult for the landlord, but that must simply be put down to the cost of doing business. Even in such situations, all is not lost, and going through the necessary procedures to make the sale happen could well be worth the hassle.
Recent data suggests that the average time to sell from the first day of marketing to completion day is around 129 days, that’s four months without rent if you choose to serve notice and market your property as vacant. While you may have to sell for less, it’s important to run the numbers before acting hastily. Selling with tenants in situ could actually be the better option.
As with everything of this nature, it’s absolutely vital you consult a legal professional in order to get the best, most current advice. The content of this article is intended for informational purposes only and does not constitute legal advice, so always consult a property lawyer before taking action.