For those on their first step towards becoming a property mogul, expectation, enthusiasm and anticipation often run high, with potential new landlords excited about the idea of being a landlord. It’s a difficult job, even at the best of times, and there are a lot of hurdles for people to overcome. Prospective landlords have a lot of jargon to deal with when they first try and break into the buy to let sector, with the idea of a ‘sitting tenant’ being one of the more confusing.
A sitting tenant is a tenant that has secure tenure of the property; this means they have a legal right to the property for the duration of their life. There are time limitations on who is a sitting tenant. A sitting tenant has to have been in the property before the 15th of January, 1989. Rent is normally capped, and the landlord has no right to increase the rate in line with the market. The ‘ fair rent ’ is to be decided by a third party, to be reviewed every 2 years. No sitting tenant can actually be evicted unless there is a breaking of the tenancy agreement. Further to this, the property may well be inherited by another family member upon death, however there are limits to this as well. The person who takes on the protected tenancy has to have the address as their sole accommodation for 2 years prior to the death of the original sitting tenant.
This leads to some situations which could be called unusual with regard to dealings in property within the UK. Namely, the landlord is unable to evict the tenant if they are looking to sell the property as there is no entitlement to evict. If you intend to sell the property, you have to sell with the tenants still in residence. Jonathan Green from the specialist property buying firm Swift Capital has said “A sitting tenancy inevitably has consequences on sale price, and it will usually be significantly lower due to the reductions in potential income. Economically, opportunity costs are high, with other residencies providing a much greater rate of return. Conversely, if looking to purchase a property that has sitting tenants in residency you will have no right to evict, and will also sacrifice rights to substantial redevelopment whilst the tenants are living there.”
When looking to prove that the tenancy agreement has been broken this can also be construed as difficult. Finding original documents which will have to be over 25 years old would be a problem for anyone due to the sheer length of time involved. As usual, good communication is key to the sitting tenant and landlord relationship. Tenancy agreements remain valid with regard to sitting tenants even as the landlord’s name changes. This means that any new landlord ought to get a new agreement signed as soon as they can, even though the sitting tenant reserves the right to refuse to sign anything new on account of their tenure.
All this can seem quite daunting to any prospective buyer of a home that has sitting tenants in residency. However, what is important to consider is the relative stability of rental income. It will be consistent, and also the property itself will be constantly occupied which is a good thing for any landlord; a smaller amount of income, likely to be guaranteed each month provides more secure income for a landlord (assuming that the rental sum isn’t insignificant). Additionally, the actual purchase will come at a lower price than it would if more conventional tenants were living in the property, meaning that a good bargain can be struck.Google+