How much does a sitting tenant devalue a property

Selling a house with sitting tenants comes with various challenges and considerations which landlords will need to take into account throughout this process. While it can be a little complicated, you can sell a property with a sitting tenant, and landlord-landlord sales are quite common. However, it is also true that some buyers will have a firm preference for an empty property as they may be worried about how much a sitting tenant devalues a property. 

Selling your rental property can be a challenging and time-consuming process. You may have lived in it yourself in the past. Whatever your reasons are for cutting down your property portfolio, it’s important that you make your property as appealing as possible to potential buyers. So, how do landlords go about selling a house with sitting tenants? And how much exactly does a sitting tenant devalue a property?

We’ll explore the legal obligations of landlords when selling a property and the sitting tenants’ rights to ensure you can navigate this process with confidence, ensuring you prevent losing as much money as possible.

What is a sitting tenant?

So, you’ve settled on selling your property but still need to figure out what to do with your sitting tenants. Before we discuss the ins and outs of how to sell a house with tenants in situ, it’s important to understand what a sitting tenant is.

In short, a sitting tenant is someone who is currently renting a property whilst the landlord is trying to sell the property and transfer ownership to another landlord or buyer.

The most popular tenancy type in the UK is an assured shorthold tenancy. If your sitting tenant has this type of tenancy, they have the right to live in your property for a fixed period of time.

Sitting tenants’ rights in the UK

Every tenant in the UK has rights (and responsibilities to the property) that landlords must respect. For instance, you cannot just turn up unannounced at your rental property once you let it out to tenants; you must first ask for the tenants’ permission at least 24 hours before a property inspection.

In 2023, tenants’ rights in the UK were altered by a transformative piece of legislation for the rental sector called the Renters Rights Bill. We can’t really talk about sitting tenants’ rights in the UK without discussing the Renters Rights Bill, so let’s get into it.

H4: Tenants can’t be evicted if the landlord wants to sell the property within the first twelve months of tenancy

Prior to the Renters Rights Bill, if a landlord wanted to sell the property at any point, they just needed to provide the tenants with a 2-month warning. However, the new legislation aims to somewhat strengthen the position of sitting tenants. With the new legislation, tenants can’t be served with a notice to vacate the property within the first twelve months of the tenancy if the landlord wants to sell it.

Tenants will no longer be served with ‘no fault evictions’

‘No fault evictions’ had gained a bad reputation because many believed they allowed landlords to repossess their property without providing sufficient explanation or warning to sitting tenants. The Renters’ Rights Bill requires landlords to give sitting tenants an explicit reason for repossessing the property. Tenants can no longer be evicted unless they are in rent arrears or have breached the tenancy agreement. Previously, a section 21 notice to end an assured shorthold tenancy (AST) meant a landlord could repossess the property without providing any ground for possession.

The right to have a periodic tenancy

After the new bill, only periodic ‘rolling’ tenancies will be allowed. So, that means an end to assured shorthold tenancies with fixed dates. With a periodic tenancy, you can still provisionally agree to a ‘move-out’ date with a landlord to end the tenancy. The rental agreement essentially runs from month to month. But tenants need to provide at least 1 month’s notice to end a monthly rolling contract.

The ability to look up a landlord on a national landlord register (coming soon)

The new bill also proposes setting up a new national landlord register. This will enable tenants to look at relevant information on landlords in an online portal.

Selling a house with sitting tenants

If you plan on selling a house with a sitting tenant,  the Renters Rights Bill has got rid of section 21 notices and strengthened grounds for possession under section 8. You have a few options on how you can go about selling a tenanted property:

Give your tenants 2 months’ notice

Communication is a key part of being a responsible landlord. You must inform them that you intend to sell the property before it goes through. The new legislation states it is mandatory to provide at least 2 months’ warning to sitting tenants if you want to sell the property.

Aside from selling the property, ‘reasonable grounds’ for repossession of in situ tenants also include property redevelopment, allowing a family member to rent the property

Selling your house with sitting tenants

Putting your property on the market with sitting tenants can be difficult, but it’s not impossible.

There are plenty of landlords out there who are open to buying tenanted properties. If a property is already occupied, they don’t need to worry about finding new tenants to make a return on their investment.

If you are putting your property on the market with sitting tenants, it is important to respect their privacy when arranging viewings. Always ensure you have provided them with 24 hours’ notice and agree on a good time and date for them. 

Here are some of our top tips for selling a property with sitting tenants:

• Prepare the Property: Ensure the property is well-maintained and appealing to potential buyers. This may involve making necessary repairs, decluttering, and staging the property.
• Effective Marketing: Create a compelling property listing that highlights the benefits of a tenanted property, such as immediate rental income and reduced vacancy periods. Use high-quality photos and professional descriptions.
• Negotiate Strategically: Be prepared to negotiate with potential buyers, considering factors such as price, terms, and conditions.

By taking these factors into consideration when selling a house with sitting tenants, you increase your chances of finding the right buyer.

Eviction

Before the sale is complete, you will need to issue a mandatory 2 months’ notice to your tenants. As we mentioned earlier, this can help to increase the pool of potential buyers, since many have a preference for vacant properties.

How much does a sitting tenant devalue a property?

Unfortunately, selling a house with a sitting tenant can devalue a property by 20%-40%, depending on the type of property, market demands and the condition of the property. Typically, sitting tenants tied up in AST agreements will see a smaller reduction due to the tenancy agreement having an end date. 

On the other hand, Assured or Regulated tenancy agreements would end up in a bigger decrease (usually between 30%-40%) due to the potential for a tenant being tied to the property for a longer period of time. 

Here are the factors that influence the devaluation of a rental property when selling a house with sitting tenants. 

• Tenancy type: as we mentioned above, the most significant factor that influences the devaluation of a property is the tenancy type. 
• Tenant rights: Specific tenant rights will determine whether or not they remain on the property.

• Market demand: if the property market is in high demand, a sitting tenant can devalue the property less than if the property market is low because finding a buyer is easier. 

• Tenant relationship: Having a positive relationship with your tenant can make maintaining your property easier, which means that your property will hold its value more easily.
• Buyer type: buy-to-let investors are often more drawn to properties with sitting tenants and are often willing to pay a higher percentage of the vacant value so that they assure a guaranteed income stream. 

So, why does a sitting tenant devalue property? As you can imagine, buyers won’t be able to occupy the property immediately. This gives them less control over the property from the beginning. 

Also, you may find that mortgage lenders are at times hesitant to finance properties with sitting tenants due to the complexity of managing the tenancy, including ending it. There are legal and administrative processes that will need to be implemented, which can also act as a deterrent for new landlords.

If you’re looking to expand your property portfolio using the money from the sale of your current buy-to-let, contact one of our experienced brokers or get a quote. We’d be happy to help you find the best landlord insurance policy for your property.