Landlords’ Guide to Sitting Tenants

sitting tenants

IN THIS ARTICLE

In this landlords’ guide, we will cover what you need to know about sitting tenants, including what the term means, their rights and obligations, and what you can do when selling or buying property with a sitting tenant.

What is a sitting tenant?

A sitting tenant, also known as a tenant in situ, is a term used to describe somebody renting a property who still lives in that property after their landlord (the property owner) has chosen to sell it. In other words, a sitting tenant continues to occupy the property they are renting after it is sold to a new owner.

What rights does a sitting tenant have?

As with all tenants, there are certain legal protections afforded to tenants in situ. The rights a sitting tenant has will largely depend on whether they already have an ongoing arrangement or contract in place with their previous landlord.

If you are buying a property with a sitting tenant, having this kind of contract in place will mean the tenant in situ still has the right to live in that property after the sale has been completed.

The rights a sitting tenant has varies according to the type of tenancy agreement that has been put in place.

How do tenancy types affect sitting tenants’ rights?

If there is an assured shorthold tenancy (AST) in place, the sitting tenant will have the right to stay in the property for the fixed period under the agreement. ASTs typically last six months to a year. If you are buying the property in question, then you will need to abide by the existing AST.

In instances where the AST is not renewed once it runs its term, it then becomes a rolling contract rather than fixed term. Under this periodic tenancy, the sitting tenant can still remain in the property. Periodic tenancies run on a week-by-week or month-by-month basis with no fixed end date.

Tenancies put in place before 15th January 1989 are considered to be regulated or assured, which means these tenants are afforded a greater level of protection than those with an AST, due to the Rent Act 1977. Regulated and assured tenancies can also be referred to as secured or protected tenancies, as these terms are considered interchangeable.

Tenancy rights for sitting tenants with either assured tenancies (not to be confused with assured shorthold tenancies) or regulated tenancies tend to be more extensive than those with an AST. These can include rights of succession, whereby they can pass on tenancy rights to their family, and even the right to remain in the property for an undetermined period of time. Under a regulated tenancy, a family member could be considered a sitting tenant with assured tenancy rights if the original tenant in situ has passed away and they lived together in the property for a minimum of two years.

However, the majority of regulated and assured tenancies were put in place prior to 1989, so these types of tenancies are quite rare today. Most tenancy agreements today are ASTs, which do not provide tenants in situ with rights of succession or the legal right to stay in the property for an unspecified amount of time.

One right that sitting tenants do not have is to automatically have first refusal to buy the property if their landlord chooses to sell it. As their landlord, you can however offer your tenants the opportunity to buy the property in the first instance, should you wish to. This is not something you are legally obligated to do.

What are the obligations of a tenant in situ?

Although a tenant in situ does have certain rights afforded to them, this does not mean they are without obligations. Even a sitting tenant with an assured or regulated tenancy still needs to pay their rent in a timely manner and maintain reasonable behaviour. If a renter is in arrears, the landlord may seek to evict the tentant by following the relevant legal process, which could include applying for a possession order for an ASL or issuing a notice to quit under a period tenancy.

Sitting tenants are required to use the property in a ‘tenant-like manner’ and maintain it to a reasonable level. Likewise, if they cause damage to the property, they must restore the property to its original condition.

It is advisable as a landlord to arrange a meeting with the sitting tenant of your new property, although they are not obligated to meet with you before the property is transferred to you.

That being said, as with most tenancies, if you choose to buy a property with a sitting tenant, dealing with the required tenancy paperwork is largely your duty as the landlord and new legal owner. Furthermore, tenants in situ may not be required by law to sign a new contract. This can lead to certain complications if they refuse to sign a new agreement.

Can you change the rental agreement for a sitting tenant?

Sitting tenants are not obligated to sign a new rental agreement, as the terms of the tenancy agreement they had with the previous owner of the property will still stand after the change of property ownership.

If the tenancy is assured or regulated (began prior to 1989), then the tenant will still be entitled to ‘fair rent’ under the terms of the Rent Act 1977. However, this does not mean that no changes can ever be made to the agreement.

Every two years (or more frequently if substantial enhancements have been made to the property), the new landlord may arrange for a rent officer to determine whether the rent being made constitutes a fair amount. However, the new landlord cannot review the ‘fair rent’ requirement for sitting tenants with assured or regulated tenancies without the involvement of this independent, qualified officer.

Rent officers are knowledgeable of what constitutes fair rent, as they update a database of fair rents, which helps to set the maximum amount that can be charged for regulated or assured tenancies.

Can you evict a sitting tenant?

Whether you can evict a sitting tenant will depend on the circumstances.

Tenancies that began before 1989 are protected under security of tenure, which affords the tenant the right to reside in the property under the Rent Act 1977.

For tenancies that began after 1989 and are classed as Assured Shorthold Tenancies (ASTs), it is usually possible to evict a sitting tenant, provided you follow the correct procedure for a lawful eviction and give the required notice.

In order to evict a sitting tenant, you must serve a Section 21 Notice. This notice can be issued to tenants renting under either an AST or a periodic tenancy/rolling contract.

The end date included in the notice, however, cannot be any earlier than the end of the fixed term for the AST. In other words, you cannot usually evict a sitting tenant before the fixed term of the AST is over, unless certain conditions apply such as rent arrears, if the tenant is engaging in antisocial behaviour or if there is a break clause in the contract allowing the landlord to take possession of the property before the end of the fixed term.

In England, landlords must give at least 2 months’ notice to evict.

Tenants with assured and regulated tenancies that started before 27 February 1997 have increased protection from eviction and the landlord must obtain a court order providing a legal reason for the eviction, such as rent arrears.

What is a Section 21 Notice?

The Housing Act 1988 is the main legislation governing a landlord’s right to regain possession of their property once a fixed term AST had ended. Section 21 of the Act was amended in 1996, and deals specifically with regaining possession of the property.

To issue a Section 21 Notice, the tenant must have been living in the property for at least four months. A minimum of two months’ notice always has to be given, or longer if their rent is paid less often than every two months. For example, if they pay rent on an annual or quarterly basis, then the notice given must match the payment frequency.

To be valid, the notice has to be provided in writing and it must also be made clear that it is a Section 21 Notice. If it contains inaccurate information or even spelling mistakes, it can be rendered invalid. So, it is important that you ensure the contents of the notice are accurate.

A Section 21 Notice can be issued for many reasons, including if you wish to sell your property or carry out improvements that require the property to be empty. If your tenant in situ accepts the notice and vacates on time (before the end date listed in the notice), then you will not need to pursue any legal action against them.

However, in cases where a sitting tenant fails to leave the property by the end date stated in the notice, you will need to have served a valid Section 21 Notice in order to obtain legal representation and to go through the courts to have them evicted. This is yet another reason why it is important to follow the legal protocol when it comes to attempting to evict a tenant in situ.

For tenancies which commenced after 1st October 2015, you also need to make sure the correct form is used when serving notice. If it is an AST, then you must use a Section 21(1)b form, whereas for periodic tenancies/rolling contracts, you should use a Section 21(4)a form.

If the reason you are trying to evict a sitting tenant is because they have done something that constitutes breaking the terms of their tenancy agreement, then you need to issue a Section 8 Notice instead.

Due to the protection offered by the Rent Act 1977, the Section 21 Notice eviction protocol does not apply to assured or regulated tenancies. This does not necessarily mean these tenants can never be evicted, however, as if they were found to be using the property illegally, then you may still have sufficient grounds for eviction.

What are the advantages of having a sitting tenant?

As well as the income that you can generate straightaway due to having tenants renting the property from day one, there is also the advantage of not needing to find paying tenants yourself. This could save you time and money.

By virtue of having tenants in situ, the property itself is also likely to be sold for a cheaper price, as having sitting tenants can make a property more difficult to sell. Many mortgage lenders also believe that if a property has a sitting tenant, then it is higher risk, so it can be harder to obtain finance. If you are a cash buyer, then this could be seen as an advantage, as you will be more likely to be able to purchase the property than somebody reliant on a loan, and you might be able to buy the property at below market value.

Properties with existing tenants are also more likely to be kept in better condition than vacant properties, to ensure tenants are living in satisfactory accommodation. As the property has a long-term tenancy agreement in place, it is therefore less likely to require any major refurbishment upon purchase.

What are the disadvantages of having a sitting tenant?

Due to the fact that properties with a sitting tenant are thought to be high risk, lenders could be hesitant to grant loans against the property. It is therefore likely that if you are not a cash buyer you will need to consult with a specialist lender, involve a mortgage broker and/or provide a higher deposit than you would for properties without a tenant in situ.

Selling a property with a tenant in situ: advice for landlords

Opting to sell a property with a tenant in situ is a big decision. As properties with sitting tenants are considered by lenders to be high risk, you may find you need to reduce the sale price below usual market value to find a buyer.

This does mean that cash purchases of your property are more likely, which could in turn facilitate a quick sale.

If you are in need of a quick sale, then bear in mind the property will probably need to be sold with tenants in situ, as the eviction process can be difficult and long-winded.

If you do decide to sell a property with a tenant in situ, another consideration is that having sitting tenants throughout the sale can be beneficial. It provides a guaranteed source of income during the sale process. Whereas, if you were to lawfully evict a tenant in situ prior to advertising your property for sale, then you would need to cover mortgage payments and bills until the property was sold. If you do evict tenants, then you should also bear in mind that the longer a property is empty, the more risk there is of a break-in or vandalism occurring to the property too.

Always make sure you inform a sitting tenant prior to listing the property for sale. Ensure they are informed of the selling process and their options.

Buying a property with a tenant in situ: advice for landlords

Although properties are overall more likely to be kept in good condition if there is an existing tenancy agreement in place than if the property has been vacant for a while, if you are looking to buy a property with a sitting tenant the sale of the property could still be a red flag. Landlords that sell a property with a tenant in situ usually do this to facilitate a quick sale. This in itself could be due to underlying problems with the property or a difficult tenant. These aspects could both result in unexpected bills when you take over the property.

Under laws in England and Wales, when you purchase a property with a sitting tenant, you also take on the rights and obligations of the previous landlord. So, you must get in touch with the tenant(s) early on to inform them of the change of landlord and provide instructions on how to pay any rent owed.

At the point of sale, you should transfer arrangements regarding the original deposit payment into your own name. This is likely to require the continuation of, or transfer into an alternative, deposit holding scheme.

You also need to tell your tenant if you opt to transfer their deposit between different deposit protection schemes. This includes providing full details in writing, which is another legal requirement.

Failing to protect their deposit more than 30 days after establishing property ownership could also mean the sitting tenant is eligible for a penalty award. So, it is certainly advisable to organise the deposit protection scheme arrangements as soon as possible.

What checks need to be carried out when buying a property with a sitting tenant?

If you do decide to buy a property with a sitting tenant, then your conveyancing solicitor should also carry out background checks on the tenants. The checks are likely to cover their employment and credit rating, as well as obtaining references from the previous landlord. This also means a commercial solicitor is required rather than residential, to ensure they have the appropriate working knowledge of the necessary procedures.

A lot of the checks you would complete for a property with vacant possession also need to be carried out when buying a property with a sitting tenant, such as requesting the EPC and Gas Safety Certificates. You should find out if a property inventory was established at the start of the tenancy and whether there are any restrictions on who the property can be let to, such as whether the property can be used as an HMO.

It is also advisable to request copies of any discussions that took place between the previous landlord and the tenant, as this will help you identify any potential disputes.
Whilst having a sitting tenant can take away the hassle of finding tenants to rent a property yourself, there is also the possibility that you will not get on well with the tenant(s), as you have not chosen them yourself.

As it can be difficult to evict a tenant in situ, it is certainly advisable to check the type of tenancy agreement they have in place prior to purchasing the property.

Tenants in situ FAQs

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Legal disclaimer

The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.

 

Author

Landlords' Guide to Sitting Tenants 1

Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.

Gill is a Multiple Business Owner and the Managing Director of Prof Services - a Marketing Agency for the Professional Services Sector.

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