Tenant in Situ How to proceed

Assuming the property you are buying has good tenant living in there. How do you transfer from a letting agent to you?

I would of thought the old AST closed and new AST created at some point in the buying process but at what stage? before processing or exchange or completion etc.

Is it as simple as doing normal open rent stuff when it comes for the transfer, reference, AST signing, gas certificate, how to rent guide, EICR, provide EPC and rent guarantee if needs extra insurance?

any suggestion helps!

The new buyer steps into the shoes of the old. Therefore if they are on an AST, it transfers to you. The tenant is not obliged to sign a new AST if they dont want to and it may not be in your interest to ask for one anyway. You need to check the existing one to make sure its sensible and covers everything. You also need to serve the tenant with a s48/s3 notice for change of landlord.

There is a lot of due diligence to do when buying a tenanted property. Hope youre on top of it all. Have a look at this list to start with. 10 questions to ask when buying a tenanted property | Vesta Blog

Thanks David, could I also ask at what stage in the conveyancing process do you discuss such terms?

Also are you able to increse the rent by 9% to reach market value.

I read a few blogs, they were suggesting ending the AST and start a new one afresh, do you have any thoughts about this method?

I would do all the checks early to avoid other solicitor costs. Also dont expect your conveyancing solicitor to necessarily know all the requirements of an AST, no matter what they say.

You can impose a rent increase if its been at least 12 months since the last one using a s13 notice. I would try to negotiate an increase informally first. 9% is on the high side, but possible if the tenant can afford it.

it has been more than 2 years fixed at a price and market price has increased by 9%。

So when you using a S13 Notice, what exactly needs to be done?

Can’t we do it like ending the old tenancy and you start yours new with a new price as long as it is agreed with the tenant beforehand?

You cant insist on a new tenancy if the tenant doesnt want to sign, but you could do that if hes willing. If the previous tenancy agreement was poor or badly set up then this would be an important option. However, the drawback is that with a new tenancy you wouldnt be able to serve notice to expire within the first 6 months if things didnt go well and you would have all the administration which it would be important to get right.

If you are intending to manage this yourself then I would say that its essential that you learn the trade and quickly. I would suggest joining NRLA or similar and doing their foundation training. A simple admin error can cost you tjousands of pounds in this business.

Yeah I am considering joining NRLA. Is it tax deductible even if it is done before a property is purchased for tax purposes? e.g. you join now paying 60 pounds during this tax year 2021-2022 and your completion and tenancy starts in 2022-2023.

At the moment the tenant is very cooperative, so I can ask him to provide a statement showing they have been paying rent since the start also along with their AST all sent to me for a quick review? i doubt the contract will have an issue as there was a letting agent managing it.

The only thing I am not too sure of is the deposit they are holding, is it right in thinking that if it is a transfer of the same AST if there is anything that needs to be paid from the deposit before my ownership I can have the benefit of being paid and if close a contract and i open a new one when
I take over essentially the deposit for paying fixes goes to the seller who just take the money and not fixing it?

Yes, NRLA membership is tax deductable if its in the same tax year as your rental business starts.

You should definitely not assume that the agent has done things properly. In addition to checking the AST is ok and properly signed, you also need to check that:

  1. Any required gas safety cert was in place before the tenancy began and was served to the tenant before they moved in. Also that it has been renewed within a 12 month period each year and those copies also served
  2. That the How to Rent booklet contemporary with the start of the tenancy was served on the tenant and the same for any renewed tenancies, (including periodic).
  3. That the EPC for the property is at least grade E and was served on the tenant at the start of the tenancy. I would also check that its not going to be too expensive to get the property to at least a grade C as this is likely to be a requirement from 2025.
  4. That an Electrical Inspection Condition Report was done for the propety before the deadline passed and is sufficiently “clean” with any essential work undertaken. Also that the report shows the next inspection due 5 years later. A copy must also have been served on the tenant
  5. That the deposit was properly protected in an approved scheme within 30 days of receipt and the deposit Presribed Information, (not certificate) was served on the tenant within the same timescale.
    All the above need evidence of service such as copies with the tenants signature.
  6. That a Right to Rent check was carried out on the tenant prior to letting and evidence retained, and will be transferred to you.

There are lots of other things you need to check which I wont go into now.

It will be up to you, not the agent to ensure the deposit is properly transferred and new deposit PI served on the tenant. You will need to set up an account and ensure the agent transfers the deposit into it.

Thanks, David. I am quite interested in “other" things that you didn’t mention. What could be more?

Essentially it is a new build flat that is 2 years old with EPC B, the flat looks fine no marks on wall and floor and the kitchen is squeak clean. considering 2 years it is impressive for a family to keep it in good condition.

Have a look at that website I linked to earlier.

Read it the first instance :slight_smile:

Just a couple of other quick thoughts. Make sure you check the local licensing situation with the Council. If you buy an unlicesed property that needs one you will immediately inherit the liability.

Check the number of tenants living there and their relationship to each other to make sure its not an HMO, (3 people at least 2 of which are unrelated)

not sure about licensing, but it is a beehive like apartment building with most of them rented out.

tenants are from a family of 3 with the kid being a newly graduated adult. Their parent’s jobs aren’t that great but all their salary should be enough.

As I haven’t done this before (correct me if I am wrong), I am guessing the steps are firs verbally agree on new price or terms while in between the conveyancing process. Then before exchange I need to proactively asking for deposit to be transferred to a scheme that I chose and it is protected by the government. Also asking all the required landlord 101 items, (check if tenant got how to rent guide, epc, gas certificate EICR, reference from the beginning and AST if I am choosing for a transfer, but if i chose for a new AST, then I just do it as if it is new but ensure the deposit is transferred. Once, complete I guess the solicitor will do a simple final check if everything is in place upon completion.

Anything i missed there?

Check if it needs a selective licence on the Council website.

Will they be able to afford it if the kid leaves home?

The max. Deposit a landlord can agree now is equivalent of 5 wks. rent. If you’re intending increasing the rent above that charged by previous owner, unless you start a fresh tenancy, the existing deposit will be a lower % than 5 wks. (which isn’t great to cover potential costs/expenses, should you end with a bad tenant).

That’s not high any more since RPI is running at 7.8%, and the rent is probably way behind inflation.

Well, isn’t it about the market rental value? I mean if inflation is high and no one wants to live in your area you won’t increase your price would you.

Of course you would want to write up a new tenancy agreement solely between you and the tenants because if you keep the old agreement, you will still be paying commission to the letting agents.

If i were you don’t increase the rent immediately either, do it next year, otherwise there is no incentive for the tenant to sign anything with you now. I would even reduce it slightly. Anyway, since there is no commission to pay, you are effectively getting a rent increase of more than 9%.

I thought you can keep the tenancy but just to give a change of landlord notice and regardless what the AST says it is to the new landlord without commission?

Anyways it will be better for me to change tenancy because it is on a rolling contract now. What I am not sure of is when and how do I make it happen.

e.g. do I simply tell the tenant to give notice to give an end date to the old AST that is exactly lined up with me on the completion date of the purchase to start my new AST exactly the same process as if he is a new Openrent tenant?

Also in terms of the timeline do I arrange everything to be signed when we know the actual completion date is planned or right at the beginning of the conveyancing process? I would of thought maybe when contract exchanged as at that point we know when the completion date is so we can put in the AST to be signed and come into effect.?

Any suggestion helps!

The letting agent will try every trick in the book to keep you paying commission and may enlist other actors to achieve this, including novice solicitors telling you that you can’t remove the letting agent from the new AST or persuading tenants to renew the contract through the agent. To make sure this doesn’t happen, I suggest an incentive to the tenant early on by reducing the rent if you sign a new AST with you. By law, the old AST is automatically void and the letting agent is automatically out of the picture when you and the tenants sign a new AST.

Completion days can change at the last minute so it’s best to collect the rent that is owed to you from the seller, not the tenant, using your solicitor on completion day itself.

So let’s say rent day is the 1st of April, and the property completes on the 20th April. On 1st April, the tenant would have paid a full month’'s rent to the seller, so you need to get the seller to pay you the rent for the days between 20th to 30th April. To achieve this, when your solicitor works out the completion amount you have to pay to buy the property on the 20th, your solicitor needs to deduct from this amount the rent the seller owes you.

Although your new AST with the tenants would be signed before completion date, the start date of the tenancy mentioned in the AST would be after the completion date, i.e 1st May. And in this scenario even if the completion date is delayed to the 24th, the tenancy date luckily remains as 1st May so no need to rewrite your AST with the tenant. So in your case, you would want as much space between completion day and the next rent day as possible, in case the completion day is delayed.

Both you and the tenant need not communicate with the letting agent at all before completion. However, after signing your new AST and before completion, your solicitor can shoot a simple email to the letting agent that you no longer require their services. After completion you have plenty of time to discuss with the letting agent how you want to manage the deposit - to keep things simple, I would leave the deposit where it is i.e. with the letting agent but obviously remove the seller’s name and but add your name to the deposit details.

Make sure you inform the tenant to cancel all direct debits and standing orders to the letting agent so they don’t accidentally pay them.