If you’re in the market for a new property, the terms ‘sitting tenant’ or ‘tenant in situ’ may well arise.
In this guide, we’ll go over what the definition of a sitting tenant is and explain their rights. Ultimately, we’ll look at what you need to do if you’re looking to buy or sell where a sitting tenant is involved.
What is a sitting tenant?
Simply put, a sitting tenant is a person (or people) who is currently renting a property that the owner has decided to sell. If that tenant has an ongoing contract with their landlord, they will have the legal right to continue living in that property even after the sale has been made.
The number of people renting in the UK continues to rise, and the length of tenancies is increasing as well. This means the likelihood of encountering properties with a sitting tenant is also increasing. This is particularly true as many landlords are selling up due to the recent tax changes as well as the ongoing negative media publicity about buy-to-let.
What happens to a sitting tenant?
For a person renting a property, it can feel like an uncertain time if the landlord announces that they plan to sell. Being in-the-know can help alleviate some of that uncertainty, so tenants are advised to educate themselves about where they stand as a sitting tenant.
Before we get into the rights of a sitting tenant, let’s look at the most common scenarios that are likely to arise in these circumstances:
In many cases, the rental property will be sold to another landlord and the tenancy will continue as before with very little change to the existing agreement. Obviously, there will be a new landlord, but everything else should stay the same.
New tenancy agreement
With rentals commonly being sold from one landlord to another, there will be some scenarios where the tenancy agreement is subject to change. The incoming landlord may wish to make some adjustments to the contract, particularly in terms of the duration of the tenancy and the amount of rent payable. Note that the tenant does have a right to ‘fair rent’ – we’ll explore this later in this guide.
It’s not uncommon for tenancy agreements to be updated simply to reflect the new ownership of the property, with the actual contents of the agreement remaining the same.
Though it is a worst-case scenario, eviction is a possibility for a sitting tenant. The new owner may wish to put their own tenants into the property or they might even want to move in themselves. Another scenario where eviction may occur is if the buyer sees unmet potential in the property and intends to make substantial changes that will need the building to be unoccupied whilst the renovations are carried out.
What are the rights of sitting tenants?
When the buyer completes the purchase of the property, they take ownership of the existing tenancy agreement. Usually, this will be an Assured Shorthold Tenancy (AST), which gives the landlord the right to evict the tenants by issuing a Section 21 notice.
Not all tenancies are ASTs, however. If the renter entered the tenancy before 1989 they will have the benefit of security of tenure. This means they have a legal right to reside there in accordance with the Rent Act 1977. This is the truest meaning of a sitting tenant – the term has merely come to be used to describe a ‘tenant in situ’ as time went by.
What are the rights of the landlord?
As mentioned earlier, tenants have the right to stay in the property for ‘fair rent’ if their tenancy began earlier than 1989. In this situation, the new landlord should be aware of their rights.
A landlord taking on a property with a sitting tenant has the right to review the fair rent every two years (or earlier if substantial improvements are made to the property). They cannot carry out this review themselves, however – it must be conducted by a rent officer.
Buying a property with sitting tenants
If you have an eye to purchase a property with sitting tenants, the house or flat price should be considerably lower than if there were no tenants in situ. This can make it a great opportunity for any landlord willing to wait out the existing tenancy, as the property will return to its full market value once the sitting tenant is no longer present.
The main obstacle for buyers looking to purchase a property with sitting tenants is financing. Many lenders will not approve a mortgage on a property with sitting tenants, so a cash purchase might be your only hope. Having said that, with an increase in the frequency of this scenario occurring and the ongoing competition between lenders in the buy-to-let market, we are seeing things change.
Selling a property with sitting tenants
While it may be complex, it is altogether possible to sell a property with a sitting tenant. In fact, it doesn’t need to be as stressful as you might think. If you have a longstanding, positive relationship with your tenant, the whole process could be far smoother than if that were not the case.
Most tenants will respect your decision even if they don’t like it. This means they will allow you to move forwards without throwing up any additional obstacles. Of course, some tenants will offer some resistance and make things harder for the landlord – it’s a part of doing business as a landlord. Even if this happens, it is still possible to sell the property. There may be more procedures to go through in order to make the sale happen, but it could be worth it.
According to recent data, the average time to sell from marketing to completion is ~129 days. If you choose to serve notice and evict your tenant first, that will be approximately four months without rent to be able to sell a vacant property. You may have to settle for a lower sale price, but you should crunch the numbers before deciding whether or not to sell with sitting tenants. It may be that having tenants in situ works out better for you.
As always, this advice is generic and not tailored to your circumstances. It is very important for you to consult a legal professional in order to obtain the most current, accurate advice for your situation. This guide is intended for informational purposes only. It does not constitute legal advice, so you should consult a property lawyer before you make any decisions or take any action.
If you’re looking to buy a property with a sitting tenant, or you need help/advice with the buy-to-let mortgage market, please don’t hesitate to contact Think Plutus. As a whole-of-market mortgage broker, we have the experience and expertise that could make all the difference to your property venture.