Buying Tenanted Property

As the host of the Question and Answer session at a local property meet, I am asked a myriad of questions about property matters. I find it useful to understand the concerns of fellow investors as well as getting a feel for the market in various areas.

One common thread of late has been questions relating to the process involved when acquiring tenanted property.

Historically Conveyancers would have asked the seller for a schedule of the rent account with the tenants and provided, upon completion, a rent authority letter which would advise the tenants that any ongoing payments of rent should be directed to the new Owner.

I understand that some conveyancing firms have not changed their process very much from this and, in my view, this is likely to cause landlords increasing issues.

In addition to this rudimentary due diligence, I believe that you should also examine the referencing results which were obtained on the existing tenants and perhaps undertake some investigation in terms of whether their financial situation remains relatively unchanged. Whilst you would need their consent to run any further credit checks, much information can be readily gleaned from the internet and social media. Certainly it is necessary to receive documentation to demonstrate that the tenants have a legal right to reside in the UK as part of the conveyancing process.  

The Deregulation Act 2015 makes provision that various documents are provided to tenants and from 1 October 2018 this requirement is to provide the tenants with those documents at the commencement of the tenancy. Anecdotal evidence suggests that tenants are increasingly using the Deregulation Act to defend possession claims under Section 21. When you are acquiring tenanted property you should therefore undertake some additional due diligence to ensure that the tenancy you are acquiring is a valid assured shorthold tenancy and has not, by default of not being terminable by Section 21, become an assured tenancy.

My advice is to seek confirmation that upon commencement of the current tenancy, the EPC, Gas Safety Certificate, How to Rent Guide were issued as well as confirmation that the smoke detectors were tested on the start date of the tenancy. Many proactive letting agents get their tenants to sign a checklist upon commencement, which confirms the date upon which the various documents were received by the tenant. In my view this will be essential in the event that you subsequently look to seek possession under Section 21.

When considering tenanted property, you should always ensure your Conveyancer asks the seller whether any improvement notices have been served on the seller by the Local Authority in respect of the property. Whilst you may be proposing to undertake refurbishment works to the property anyway, this is important as a Section 21 notice cannot be served until any improvement notice has been satisfied. This policy was introduced to counter the so called “retaliatory” evictions where tenants were evicted for complaining to their landlords. An unsatisfied improvement notice could create difficulties for you if you cannot evict the tenant but yet cannot undertake the refurbishment works whilst the property is occupied.

Assuming the foregoing is all in order and you proceed with your purchase, the next step is to serve a section 48 notice (1987 Landlord & Tenant Act) on your tenant. This notifies the tenant that they have a new landlord but more importantly unless or until it is served, you are not legally able to collect rent from your new tenant. Indeed if this aspect is overlooked, then your tenant could seek to obtain the return of any rental monies they have paid to you.

Furthermore you will have to arrange for the protection of the tenants deposit. If you have an account with the same deposit scheme as the seller of the property then the deposit should be able to be transferred upon completion of the sale. Should this not be the case then the seller should return the deposit and then you can protect it, remembering to issue the tenant with an up to date version of the deposit prescribed information.

One final note to mention is that additional effort will be required in the event that the property is in a selective or other licensing area. As far as selective licensing is concerned, the licence is not transferrable and therefore as the buyer you will be obliged to apply for a new licence. Whilst it is unlawful to collect rent from an unlicensed property (in a licensing area) most local authorities will permit letting whilst a new application is going through.