How to Sell a House with a Sitting Tenant: A Guide for Landlords
If you own a house with a sitting tenant then that could knock thousands of pounds off its value – and even make it impossible to sell at all. Here’s our guide to selling a house or flat with a sitting tenant.
What is a Sitting Tenant?
The term sitting tenant is used to describe a person (or people) who has a legal tenancy which entitles them to occupy a property. The tenant is described as sitting in this regard because the tenancy gives them the right to keep living or to ‘sit’ in the property even if it is sold.
Selling a house with a sitting tenant is sometimes known as selling a house with a tenant in situ.
While you can legally sell a house with a sitting tenant you can’t necessarily evict a sitting tenant just because you want to sell your house.
Why Sitting Tenants can be a Problem
The main problem with selling a house with a sitting tenant is that there are a number of problems which can make it difficult to sell.
Most homebuyers do not want to buy a property with a sitting tenant since they want to live there themselves.
Landlords and investors are often less likely to buy a property with a sitting tenant because they do not know whether the tenant is good or bad, do not know what the tenancy involves, or are unable to get a mortgage to buy it. They may have other plans for the property. That is, they may want to move their own tenant in, charge more rent or redevelop the property which they may be unable to do with a tenant in situ.
While you may think that selling a house with a sitting tenant is an advantage because it offers the new landlord a ready-made income, this is not the way many buyers see it.
How Much is a House with a Sitting Tenant Worth?
Because of these problems, the market for a house with a sitting tenant is generally quite small. Not only that, but it can also mean a house with a sitting tenant will be worth much less than a house which benefits from what is known as vacant possession.
You should ask an expert to advise you on the difference in value. However, this report in The Telegraph says that properties with a sitting tenant can sell at auction for up to a 60% discount.
That means a house worth £250,000 vacant could be worth as little as £100,000 when sold with a sitting tenant – a £150,000 loss.
If you own a tenanted property that you need to sell, we can put you in touch with one of our partners who will buy properties in any condition for 100% market value in just 28 days. Click here to find out more.
Is my Tenant a Sitting Tenant?
There is not just one but several different types of sitting tenant. The difference depends not on the tenant themselves, but on the type of tenancy they have.
Assured Shorthold Tenancy
An assured shorthold tenancy or AST only gives the tenant the right to live in a property for a fixed period, generally no more than 12 months. Most tenancies created since January 1989 are assured shorthold tenancies. In this case, the sitting tenancy only applies until the end of the stated tenancy period.
Regulated tenancies are other kinds of tenancies created prior to January 1989. Regulated tenancies give tenants much more security than an AST. They may regulate the rent to fair rent levels and allow a tenant’s family members to take over the tenancy, which is known as a right of succession. There are also assured tenancies – mostly those started between 1989 to 1997 which are not ASTs.
Tenants with these tenancies are usually considered to be sitting tenants because they may effectively have the right to occupy the property permanently.
Tenancy law can be very complex. This information also only applies to England and Wales – there are differences in Scotland. If you own a house with a sitting tenant and want to sell it then it is very important to find out what type of tenancy the tenant has first. If necessary take legal advice.
Sitting Tenants and Mortgages
One of the problems of selling a house with a sitting tenant is that it may be difficult for the buyer to get a mortgage. Most banks and building societies will not give a mortgage on a property with a sitting tenant, especially a regulated tenant. Those that are willing to lend on a tenanted property will usually charge a higher interest rate and only offer a lower LTV or loan to value.
Even if you find a buyer for a house with a sitting tenant that buyer may not actually be able to borrow the money to buy it.
How to Sell a House with Sitting Tenants
Here are the main solutions to sell a house with a sitting tenant:
- Give the Tenant Notice
You can give the sitting tenant notice, where possible. Then when the tenant leaves you can sell the property without a sitting tenant and with vacant possession. You will need to check the tenancy agreement to see if you can give the tenant notice.
This may be possible if the tenancy is an assured shorthold tenancy perhaps by issuing what is called a Section 21 Notice or a Section 8 Notice, in some cases.
If the tenancy is a regulated or an assured tenancy you may not be able to give the tenant notice. You could try asking the tenant to leave, or perhaps offering them a financial incentive to leave. However, this may be difficult and expensive and the tenant may refuse to do so.
- Wait until the Tenancy Ends
You can wait until the tenancy ends, if applicable, and then sell the house empty with vacant possession. You will need to check the tenancy to find the end date, or even if there is one at all.
If the tenancy is an assured shorthold tenancy there will be a date on which it can end. However, other kinds of tenancy, may, effectively, have no end date at all.
Other problems when selling a house with a sitting tenant.
There are some other problems to consider when selling your house with a sitting tent: Your sitting tenant may not co-operate with the sales process, especially if they are not happy at being asked to leave. Your tenant may be unwilling to allow estate agents, valuers and potential buyers access to the property. You can only insist on this if the tenancy allows for it.
In some cases, your sitting tenant may be willing to move out so that you can sell your house. However, if they cannot find somewhere else to live it may stop them from moving.
Even if your sitting tenant co-operates the house may not be tidy or well presented which can put potential buyers off.
If your sitting tenant leaves your house and you put it up for sale your house will not earn any rent until the sale goes through. So, for example, if the monthly rent is £900 and the sale takes six months this would cost you £900 x 6 = £5,400 in lost rent.
- Ask your Tenant to Buy the House
A sitting tenant does not have a right to buy their home, except in the case of a local authority property. However, you could offer them the opportunity to buy it.
Possible problems with this are that your sitting tenant may not want to, may not be able to afford it, or may not be able to get a mortgage.
- Sell the House with a Sitting Tenant
You can sell your house to a landlord or property investor with a tenant in situ. If you do this the new buyer will take over the existing tenancy, or replace it with a new one, and become the tenant’s new landlord.
Remember that the value of a house with a sitting tenant may be much less than the same house without a sitting tenant. It could be difficult or even impossible to find anyone who wants to buy with a tenant in situ at all.
- Selling to a Cash Buyer
Selling your house to a cash buyer, complete with a sitting tenant, can be a quick and straightforward way to solve your sitting tenant problems.
If you sell your house to a cash buyer the tenancy will become the responsibility of the buyer. Problems with the tenant or the tenancy, or with buyers who need a mortgage, won’t be able to delay or stop the sale.
A cash buyer should be able to offer you a fixed cash price and guaranteed completion. Your house will be sold, the cash will be in the bank and your sitting tenant problems solved within a few short weeks.