Buying a property with existing tenants in the UK

Buying a property with existing tenants also known as buying a home with tenants in situ.

Many landlords may look to sell their properties with existing tenants already in the property and this may be attractive to you as a buyer as the property will already be generating revenue from day 1.

After the buy to let tax relief changes a few years ago, a few landlords who owned a portfolio of buy to let property

Buying a property with existing tenants may, therefore, seem like a no brainer to most investors but there are things which you should look out for to ensure you are getting the good end of a deal.

If the tenancy is about to come to an end this means even though you have bought a property with existing tenants you might have to deal with checking them out, ensuring they get their deposits back in accordance with their rental agreement and then finding new tenants who you can rent the property too.

what concerns should you have when buying a property with existing tenants?

Getting a mortgage

Mot mortgage lenders may not agree to lend to you if the property you have has existing tenants. This is the case with buy to let mortgage lenders and you may struggle finance for the property.

There will however bee some mortgage lenders out there who will be willing to lend to you on the property. Speaking to a specialist mortgage broker about your need to buy a property with existing tenants may be useful as they could potentially recommend you to mortgage lenders who accept applications such as this.

Most mortgage lenders who are willing to lend to you will expect to see that your tenants are on an assured shorthold tenancy agreement and have these in place for a minimum of 6 to 12 months.

Most mortgage lenders will also like to see that the rent being derived from the existing tenants is at least a certain percentage over the cost of the mortgage per month.

Buying a property with existing tenants can also complicate issues further after the mortgage offer stage. When a property survey is required to be carried out you will find that you need to get permission from the tenant to enter the property and tenants can deny you this right as they have exclusive occupation of the property until the tenancy is terminated or finishes.

A tenant will retain exclusive occupation even after the tenancy has finished if they choose to remain in the property. Only a court order will allow you to enter the property and evict the tenant.

Finding a solicitor or conveyancer to assist you in buying a property with existing tenants will allow you to plan your purchase efficiently and avoid doing anything that may increase how long it takes for you to exchange contracts with the seller.

Ensuring your landlord obligations are being kept as of day 1

Because you will be buying a property with existing tenants you must ensure all your legal obligations as a landlord are currently being kept.

This means any obligations that the previous landlord should have kept but maybe wasn’t doing.

Some of the obligations you will need to check include:

Are there are smoke alarms on each storey of the property and carbon monoxide alarms in each room containing a solid fuel-burning appliance

Has a repair request been made by the tenant and has the condition of the property been kept in a manner which is suitable?

Has the local housing authority issued a housing disrepair within 6 months? If so this is something you will want to follow up and check with the current landlord and tenants(if possible).

Have the existing tenants paid a rental deposit and has it been protected in an approved deposit protection scheme as stipulated by law.You will need to ensure that the current tenant’s deposit is protected. The law states that landlords must protect any deposit they take within 30 days of receipt and issue prescribed information to their tenant. If the previous landlord did not do so, and the tenancy began on or after 6 April 2007 (when existing deposit protection legislation came into effect), you should recover the deposit from the previous landlord and either protect it yourself or return it to your tenant.

Whether the property is subject to mandatory or selective licensing and, if so, whether the necessary licenses are in place and up to date

Whether all gas appliances and fittings have been checked by an approved expert and issued with a gas certificate within 12months.

What to do once you buy a property with existing tenants

Once you have purchased a property with existing tenants you should issue a notice under section 48 of the Landlord and Tenant Act 1987 to provide your existing tenants with a record of your address or whatever address you use as your “landlords address”.

You should also arrange a gas and electrical safety check to ensure everything is fine with the property and get any certificates you may need for your records as the new owner.

You should also ensure you get a complete and signed inventory from the previous landlord so you can return the rental deposit in line with the rental agreement. You may also want to take a new inventory of the property if the tenants permit you.

You may also wish to obtain legal advice as to how you should proceed; for instance, it might be better to refund the deposit to all tenants and simply start a new assured shorthold tenancy agreement which will allow you to collect new tenant deposits and secure them in an appropriate deposit protection scheme as required by law.

John Bate

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.