Guide to Selling a Property with Tenants in Brighton and Hove

With the Bank of England rate reaching 5% in June 2023, mortgage interest rates have rocketed. Many landlords coming to the end of a fixed-term mortgage are now considering selling their property or facing a jump in mortgage payments.

With the prospect of higher interest rates and stricter regulations for landlords, many are now considering whether keeping hold of their rental property is worthwhile.

According to Rightmove figures published in July 2023, sold prices in Brighton are 12% higher than one year previous. However, many experts predict a house price fall, so now could be the best time to sell rental properties.

Selling up now may be the best financial decision, but if tenants live in the property, this can complicate the sale.

If you want to sell your property in Brighton and Hove with tenants in situ, there are a few things to consider. We weigh the pros and cons and help you understand the issues before putting the property on the market.

In this guide, we answer the questions we often get asked about selling a Brighton and Hove rental property with tenants, such as – How easy is it to sell some of your portfolio while tenants are currently renting from you? And what do you need to know before putting your rental property on the market?

What Is A Sitting Tenant?

A sitting tenant rents a property while the house is sold to a new owner. They live in the property throughout the sale, and the tenant is transferred to the new landlord.

Having a tenant living in situ can make a property sale more complicated, but it can also be an advantage, as another landlord will sometimes prefer to buy a property that already has a tenant.

As well as preventing a void period with no rental income, the new landlord will not have to spend time and money finding a new tenant if there is already a tenant in the property.

However, the landlord selling the property must follow the correct legal steps during the sale process, which will differ depending on the type of tenancy agreement.

What Are My Options When Selling A Property With Sitting Tenants?

Three primary options are available when selling a rental property where the tenants are still living there.

1. Give Your Tenants Notice And Sell The Property As Vacant

With an assured shorthold tenancy (AST), you can serve notice to your tenants with a Section 21 notice to vacate the property. This regulation is part of the Housing Act 1998. However, you must ensure that the tenants are in a statutory periodic tenancy (assured shorthold tenancy agreement) and no longer in their fixed term unless there is a break clause.

As long as you have followed the regulations, your tenants should leave the property, and then you can freely put it on the market to sell. Finding a buyer can be a lengthy process. Therefore, you should be prepared for the financial costs of the rental income loss.

The current notice period for asking a tenant to vacate the property with a Section 21 notice is two months unless your tenant is more than six months behind with their rent or you are evicting them because of anti-social behaviour or domestic abuse.

The tenant eviction legislation is likely to change soon, with the Renters Reform Bill currently in the early stages of going through Parliament. It is expected to be passed in 2024, and if/when the Bill comes into effect, Section 21 evictions will be abolished. You can keep up to date with the progress of the Bill on the UK Parliament website.

2. Sell The Property With Sitting Tenants

You are within your rights to put the property with tenants in situ up for sale. The benefit of this option is that you won’t incur any loss of rental income from holding a vacant property while you look for a buyer and then wait for the sale to complete. This benefits both you and the prospective buyer as they won’t need to find a tenant for the property.

Advantages Of Selling A Property With Sitting Tenants

• You continue to receive rental income rather than having a void period while the property sale goes through.
• It is less disruptive for the tenants, as they can continue living in the property without the upheaval of moving.
• The new owner will receive rental income as soon as the sale completes and will not have to spend time or money finding new tenants.
• The property will remain more secure throughout the sale with a tenant living there.
• No renovations are required. Usually, landlords have to redecorate and replace carpets and other items that have wear and tear when new tenants move in.

Disadvantages Of Selling A Property With Sitting Tenants

• Selling a house with sitting tenants is generally more complicated, with much more paperwork involved.
• There are fewer potential buyers, as you will be selling to a landlord rather than someone moving into the property themselves.
• Viewings will need to be arranged with the cooperation of the tenants.
• Tenancy agreements could lower the sale price. For example, buyers will be less prepared to meet a higher asking price if the rent is lower than the new landlord could achieve in the current rental market.

3. Sell The Property To Your Current Tenants

If your current tenants are interested and can afford it, this is probably your dream scenario when you want to sell a property. You will limit lost income, and the sale process will likely be straightforward, particularly if you have a good relationship with your tenants. Selling to existing tenants can be a win-win situation, especially if they have developed an emotional attachment to their home.

Also, you will not have to pay estate agent’s fees if you sell the property privately to your current tenants.

What If I Decide To Repossess The Property?

If you want to repossess your rental property, follow the correct legal procedure. The proper way to do this is usually by serving your tenants with a Section 21 notice. However, this could soon no longer be the case. The Renters Reform Act is progressing through Parliament and if/when passed, the section 21 eviction notice will be abolished.

You can keep up to date with the progress of the Renters Reform Act and the latest eviction rules on the gov.uk website, so you know the correct process if you want to sell a property with tenants in future.

Despite the complexities of the eviction process, repossessing the property will mean that you can sell the property to any buyer, so there will be a much bigger pool of potential buyers, which can help to achieve a higher asking price.

How To Sell A Tenanted Property

Here are some detailed answers to the most common questions about selling a tenanted property:

When Should I Notify My Tenants Of The Sale?

Although you don’t legally need to notify your tenants of your intention to sell the property, it is advised that you do as a matter of courtesy. If you intend to repossess the property first, this is a good time to explain your reasons for selling and allow them to make an offer to purchase the property if they are interested.

If you proceed with a sale but with the tenants in situ, speak to them to explain the situation and reassure them that you are selling to another landlord who will honour their tenancy. Therefore, they shouldn’t be concerned that the terms of their tenancy will change.

Being transparent and communicating with your tenants as much as possible will allow for efficient and smooth viewings.

Can I Demand A Higher Price With Tenants In Situ?

It depends. If finding decent tenants in your area is problematic, you may be able to ask for a premium. After all, you are providing ready-made, reliable tenants, saving the buyer stress and unnecessary costs.

However, when you inherit another landlord’s tenants, it will always be a slight gamble, giving an experienced buyer some bargaining power.

What Should I Do About Scheduling Viewings?

You must follow the terms in your tenancy agreement and the correct legal procedures when organising viewings.

You must always give your tenants at least 24 hours’ written notice before any intended viewings and wait for their permission. Viewings should also be at a reasonable time.

Otherwise, you could breach your tenant’s right to ‘quiet enjoyment’. Some landlords offer a slight rent reduction to compensate for the disruption of viewings.

What Are The Legal Aspects Of Changing The Contract?

If you want to sell your property with tenants in situ, you should seek a conveyancing solicitor with experience. Your solicitor should ensure that the new owner takes over as their landlord, taking on all legal obligations and removing yours to the tenant.

How Do I Transfer The Tenancy Deposit?

The tenancy deposit you collected when the tenant moved in should, by law, have been placed in a secure government-backed scheme. During the sale process, your conveyancing solicitor should arrange for the name on the deposit scheme account to be transferred to the new buyer. It is worth contacting the tenant’s deposit scheme company to check it has been transferred correctly into the new owner’s name.

You should also ensure that the new owner has passed all the relevant documents such as the Gas Safety Certificate, manuals for any appliances, etc.

What Happens At Completion?

When the sale goes through and you are ready to complete, it is a good idea to set the official completion date for the date on which the rent is due. This way, everything hands over smoothly, and no rental monies are owed to either party. If this isn’t possible, then your conveyancing solicitor can make arrangements to allocate and pay any rental money due to either the buyer or seller.

If you are considering selling a rental property in Brighton and Hove with tenants in situ, we’re a local estate agent happy to offer expert advice. Contact us today to find out more.