Buying a house with tenants

04/01/2018
Landlords might be drawn to buying a house with tenants already in residence with the instant rental income and no letting agent 'finder fee'. What is often forgotten about are the potential risks and the degree of uncertainty of taking on another landlord's tenant such as:

  • Are the tenants good payers?
  • Have there been any disputes?
  • What reference/background checks did the landlord do?
  • Was the tenant's deposit registered with a DPS?
  • Or confusion over condition of the property on sign-out compared to sign-in

This is why some landlords choose to start with a clean slate and buy the property with no tenants; enabling them thoroughly inspect the property, understand its condition and choose their own new tenant. If this is your preferred choice then it is important to read this article - What to do when your tenant won't leave.

There is also some confusion over buying a property resident tenants or with sitting tenants. The two are very different and there are rights that sitting tenants have such as rent rise and eviction protection. You can read more about What is a sitting tenant?

*Fixed Fee – No Sale No Fee – On all Mortgage Lender Panels

Fixed Fee, No Sale No Fee and Unbeatable Value Solicitors.

 

5 things you MUST do when buying a house with tenants


1. Check the tenants payment history

It is every landlords nightmare to have a property which they aren't being paid for, so it is important to find out if your new tenants have missed or been late paying their rent. Speak to the landlord or letting agent to find this out.

2. Are there any on-going or historical disputes?

You need to understand if there are any issues that haven't been resolved between the tenant and the existing landlord. Issues such as maintenance in the property, broken equipment or even defects such as damp need to be brought to your attention so you can gauge what needs to be done.

You may find that you have tenants who have unrealistic expectations of what is maintained by the landlord. The best way to address this concern is to talk separately with the tenants and the landlord.

3. Know your tenant

The checks you do for a tenant in 'situ' and a new tenant don't differ so you should ask for:
  • length of time living at property (longer than a year would indicate a tenant who has renewed their AST at least once)
  • a copy of the AST - best practice is to get the tenant onto a new agreement directly with you under the same term length and rent
  • references from previous landlords
  • identification (you need to know the tenant on the AST is the same as the tenant living in the property)
  • last 3 month's pay slips
  • (if applicable) rent guarantor details

4. Deposit Protection Scheme

It is a landlord's legal obligation to both register a tenant's deposit at a Deposit Protection Scheme (DPS) and to also provide the requisite DPS documentation to the tenant so they are aware where their deposit is and how to reclaim it. Getting either of these wrong could leave the landlord being faced with a court case and a penalty of up to 3 times the deposit value.

You must make sure the tenant deposit is returned by the existing landlord to the tenant or transferred from the current DPS to your DPS. Once you receive the deposit or register it, you must ensure you provide the prescribed information to the tenant (even if it is in the same scheme).

5. Condition of property

To avoid any confusion (and identify issues such as damp) you should agree with the existing landlord to inspect the property as if the tenant were moving out. Ignoring standard wear and tear, you should agree the condition of the property with the exiting tenant and landlord at the point you are about to take ownership. This protects you in the future from any disputes over condition or damage caused by the tenant after you buy the property.

These sign-in and sign-out checks should always be done using an independent inventory clerk who logs the condition of the property at a given time and then can reassess any changes in the future. The inventory clerk includes pictures so that disputes that do to court can be more readily handled. A mistake to make is to think your own photos are adequate enough - sadly the photos need to be evidenced, dated and signed-off by both tenant and landlord.

Make sure to get the existing landlord and tenant to agree the current condition, and for the landlord to then agree to release the deposit to the tenant. You don't want to get caught in the middle of a landlord and tenant claim over damages as these can drag on for months.


Treat a resident tenant as a new tenant

Getting rent in quickly means for less losses, however getting a tenant with a bad track record could be even more costly. For the landlord that is selling they'll have passed on to you their problem and, as long as their were no misrepresentations, then you'll have no recourse over the seller should anything bad happen with your new tenant.

The best advice when buying a property with a tenant is to treat them as if they are a new tenant and do all the checks you normally would. Assuming the tenant is a good tenant exposes you to needless uncertainty in the future.

If you are buying a house with a tenant in residence then call us for more help on 0333 344 3234


*Fixed Fee – No Sale No Fee – On all Mortgage Lender Panels


Related News Articles

 
Buy to Let advice - The things you must know
29/11/2017
The Eviction Process for Tenants
08/01/2018
new-conveyancing-process.png

Log in to your FREE online Conveyancing Process

Complete your to-do lists, save your progress, watch our videos and follow our tips to lead you through from instructing your solicitor to when you finally move in. Our simple, easy to use process has already helped over 2,857 people move home in 2017 and it is FREE to use.