What is the value of property with sitting tenants?
House prices and valuations are typically based on factors including location, building condition and local amenities. But what is the value of a property with sitting tenants?
The rapid growth of private landlords over recent years has meant more properties coming onto the market with existing rental tenants in place. Especially as the supply of available rental properties hasn’t matched demand, increasing rents, especially with a stamp duty holiday until September 2021, and low interest rates.
How do sitting tenants alter house values? Does it hurt your chance to sell your house quickly? Will you get a better offer for a property for sale with a guaranteed rental income, or is it better to sell a vacant house to maximise your returns?
What is a sitting tenant?
If someone is currently renting the property you wish to sell, then you have a sitting tenant. The rights assigned to renters will depend on the agreement they have in place with the landlord or letting agent.
Most tenancies are Assured Shorthold Tenancies (ASTs). These are used for private properties after 1989 where it will be the main accommodation for the renter, and require a tenant’s deposit to be put into a government-approved protection scheme. Most will begin with a six or 12-month initial term, followed either by a renewal or switching to a periodic monthly rolling contract.
Other types of rentals, such as Assured or Regulated Tenancies were more commonly used in the past for long-term agreements and rights.
Can you sell a property with sitting tenants?
A landlord can sell any property with a sitting tenant, as long as you inform them of your intention.
It’s a good idea to be considerate of your existing renters, as their co-operation will make the sales process much easier. This includes access to the property for valuations, viewings or any improvements to encourage a sale.
Although your existing agreement should include clauses for access with 24 hours of notice, there are exceptions if the frequency and length of the visits could infringe on their right to “quiet enjoyment” of the property. It will also help to mitigate issues with cleaning and maintenance during the notice period.
You may also want to offer your tenants first refusal on purchasing the property, although it’s not required by law. If they’re willing and able to invest in the house or flat, this could save you time and money compared to going through the vacancy and sales process.
What is the value of property with sitting tenants?
With any sale, the amount you receive will depend on the interest of the buyer. If you’re selling to an existing or prospective landlord, a reliable sitting tenant might not be an issue.
But in general, having sitting tenants in place will reduce the market value of a property. The impact will depend on the type of tenancy and rent payable, but estimates vary from a 25-40% reduction, to 75-80% for long-term Regulated Tenancies.
The reasons are that it rules out the option for a buyer to live in the house themselves, and they may be less likely to get a mortgage. It also limits their options for new tenancy agreements, increasing rent, redeveloping the property or moving their own tenants in.
This makes it more attractive to regain possession before selling, but it’s worth factoring in the cost of the vacant property. You’ll need to cover any costs, including mortgages, while the building is empty, and it can have a greater risk of being broken into or vandalised.
Common options for selling a property with sitting tenants include auctions, or home buying services.
What rights do sitting tenants have?
The rights of sitting tenants will vary depending on the agreement in place. For Assured Shorthold Tenancies, you can regain possession of your property by issuing a Section 21 Notice which will require them to leave at the end of the fixed term, or with at least two months’ notice for a periodic tenancy.
You can write a Section 21 Notice yourself, but it’s essential that the document is correctly worded and includes the right information, or it can be judged invalid. Legal advice is recommended to make sure that everything is in order. And it’s also worth being considerate of your tenants as far as possible to avoid any complications with valuations, viewings or access to the property, for example.
A tenant with an Assured or Regulated tenancy might have rights of succession (which means they can leave tenancy rights to relatives), or the right to stay in the property indefinitely.
The rights of tenants are different in Scotland, and you’ll need to inform your tenants of a Notice To Quit and a Section 33 notice.
Your options for selling a house with sitting tenants
As a landlord looking to sell a property with sitting tenants in place, you have a few options available. And the suitability of each choice will depend on your individual situation.
- Wait for the existing tenancy to end: If there is a fixed term AST in place, the tenancy end date will require tenants to vacate the property.
- Give the sitting tenants notice: For a periodic rolling monthly AST tenancy, or if you don’t wish to wait until the end of the fixed period, you will need to give formal notice via a Section 21 notice.
- Sell to the sitting tenants: While existing renters often don’t have the ability to buy the property, it’s worth checking as it can save you time and money on legal fees and the sales process.
- Selling the house with sitting tenants remaining in place: Some buyers will be happy to purchase a house with tenants already in place. Alternatively, you could look at property auctions or selling quickly and easily to a home buying service.
If you are looking to sell your home fast for cash, National Homebuyers can help you. We provide a quick, individual and no obligation valuation for properties and we guarantee that a cash offer will be made.
Please contact us on 08000 443 911 or complete our contact form and one of our friendly team will call you back.