Selling a Rental Property: A Landlord’s GuideWritten By PropertyLoop June 14, 2021
Similarly to finding new tenants, the sale of a rental property is no small feat. Whilst many say that selling a property can easily become one of the more stressful aspects of life here we offer a helping hand to those looking to sell a tenanted property, cutting through the myths and asking if you can sell a rental property with tenants in it.
Communicating With the Existing Tenants
As can be expected, if a landlord is taking steps to sell their rental property this will of course be a tremendous change for the current tenants residing within the accommodation. To this end it is recommended that landlords keep their tenants informed of their intentions to sell the property, perhaps even offering them the chance to purchase it themselves, especially if they have remained in the property for an extended period of time. It is important to remind the tenants that the tenancy agreement is still in place and until the sale, everything will continue as normal.
Transferring Tenancy Deposit when Selling a Rental Property
Whilst a landlord is under no legal obligation to request that their tenants supply them with a tenancy deposit, it is highly uncommon for this not to happen. This is because rental property owners are able to use this amount to cover the costs of any repairs, or replacement furnishings that they may need come the end of the agreement’s fixed term. With this being said the landlord is not able to make deductions from the provided amount if the damage is considered to be “Fair wear and tear”. Additionally rental property owners are prevented from charging any amount they see fit for this tenancy deposit. The Tenant Fees Act 2019 dictates that if the amount tenants pay in rent for a property in a year is under £50,000 then they are not required to issue the landlord with more than the equivalent cost of five weeks rent. However, if the amount that the occupant of a rental property pays in annual rent is more than this amount, the landlord is able to request the tenants pay up to six weeks rent for their tenancy deposit.
Whilst property owners do not have to request a tenancy deposit, if they choose to do so the taken amount must be entered into a government approved deposit protection scheme. The individual nuances of how the deposit will be transferred to the new landlord will vary depending on the type of scheme that the sum was entered into. However, this isn’t a convoluted process and prior to the completion of the sale the landlord must prove that the existing tenants had their tenancy deposit protected under such a scheme.
Generally speaking if the landlord has chosen to enter the taken amount into an insurance based scheme then they will be legally obliged to ensure the amount is provided to the new landlord. Once the taken amount is possessed by the new landlord, they will hold the responsibility of entering the amount into a new scheme.
However, if the owner of the rental property has chosen to protect the amount taken for the tenancy deposit through a custodial based scheme the process is arguably simpler. Unlike the insurance based deposit protection schemes, the original landlord will not be physically safeguarding any amounts taken from the tenants. Because of this it means that in most cases the new landlord will be able to have the concerned amount put under their name and the information regarding the tenancy updated in the place of the original landlord.
Making Repairs to the Property
It goes without saying that when trying to sell a rental property, or attract new tenants, the opportunity must be presented in its best light. With this in mind the appeal of the property would be significantly diminished if the rental is in a state of disrepair. Whilst those that perhaps looking to establish a foothold on the property ladder may be more forgiving regarding the state of a property they are interested in, as they will want to make more radical adaptations to the building to make it their own; the same cannot be said for landlord’s, not to mention this wouldn’t be a viable option to conduct such work with full time residents.
If the landlord is choosing to market the rental property at the close of the fixed term then they would of course be able to use any amounts taken from the tenants for their tenancy deposit to address any damage that has occurred over the course of their tenancy.
It is essential for landlords to consider their tenant’s right to “quiet enjoyment” of the property, when they are preparing the rental for sale. This right is in place upon the signing of the tenancy agreement and works to serve the interests of the tenant until the end of the fixed period. Put simply, a tenant’s right to “quiet enjoyment” allows renters to go about their life in a new home without the constant disturbance, harassment or unnecessary visits from the landlord, letting agent or their representatives.
With this being said landlords will find it rather difficult to sell their buy to let property if they are unable to share their rental opportunity with prospective tenants. To this tend it will be inevitable that in person viewings will be carried out throughout he rental property, meaning this will have to be negotiated with not only the interested party, but the existing occupants of the rental property.
In order to avoiding infringing on the resident’s right to rent it is imperative that they are given at least 24 hours’ notice before a viewing of the rental property is conducted by the landlord. Furthermore if the timing is not convenient for the existing tenants of the property they are able to withhold their consent to enter the rental, meaning the landlord will have to rearrange the viewings. As can be expected having multiple parties of interested tenants, while fantastic news for the landlord, is disruptive to say the least for the existing tenants and will almost certainly violate their right to quiet enjoyment. With this in mind it is recommended that landlord try to showcase their rental opportunity to all interested parties within a strict time allocation. Not only will this meant the landlord will be save d the headache of numerous commutes to and from the rental property, but the residents will not have to contend with property viewings spread out across multiple weeks.
Capital Gains Tax after Selling a Rental Property
An essential consideration for landlord when selling their rental property is capital gains tax. Any profits that are realised through the sale of the property must be taxed; however landlords will be pleased to know that they currently have an un-taxable threshold of £12,300, with the remaining amount being subject to tax. With this being said rental property owners are able to further reduce this amount through deductions that can be made for specific business expenses, typically comprising capital improvements to the property, and agency fees.
Evicting a Tenants
Naturally, putting a rental opportunity to the market with existing tenants is not the landlord’s only option. If they are planning to sell the property with vacant possession, or the market has proved to be moving too slowly when trying to market the rental with occupants, the owner may take steps to reclaim possession of the rental. Whilst this is not always the preferred method by landlords as this would deprive them of a significant portion of their rental income during the time they are trying to sell the property, it is not uncommon.
With this in mind, most commonly a landlord in this situation will issue the existing tenants of the rental property with a section 21 notice.
Commonly referred to as a no fault eviction, when a section 21 notice is served to a tenant by a landlord, the owner of the rental property does not have to provide any justification for their decision to serve the notice. This is common practice when serving a section 8 notice as the specific grounds for eviction must be cited, as they are used when a tenant has found to be in breach of the terms of their tenancy agreement. This is not the case with section 8 notices, and whilst the ultimate outcome may be the same, as the tenant will still be required to vacate the rental property, the notice is simply intended to state that once the fixed term of the rental agreement comes to an end they will not be renewing the tenancy and wish to reclaim possession of the property.
With tenants that have breached the terms of their tenancy agreement, they may expect to receive a section 8 notice, regardless of whether they intend to adhere to it. The same cannot be said for those that receive a section 21 notice, because as mentioned before it is not intended as a retaliatory measure against problem tenants. With this in mind, just as you would issue tenants with ample notice of your intentions before taking the rental property to market, the existing occupants should be informed of your intentions to reclaim possession of the property, allowing them time to search for their next home. If however, at the end of the notice period the tenant’s prove to be reluctant in vacating the property, the landlord is able to gain a possession order from the courts.
Whilst a break clause will not be common place in every tenancy agreement, if you have such a term included within your tenancy agreement with the existing occupants of the rental property then this may be a more viable alternative than the eviction process, regardless of the type of notice you intend to serve to the tenants. Simply put, a break clause in a way in which the owner of the rental property is able to terminate the tenancy before the close of the fixed tem. With this being said a landlord is prevented from enacting a break clause if the tenancy is still within its initial six months of the fixed term. Additionally, similarly to an eviction notice, a break clause comes with a two month notice period that must be provided to each of the effected tenants. In order for the break clause to be legally upheld this notice period must also be supplied to the existing tenants in written form, making it indisputable that the notice was supplied.
When the landlord is stipulating the terms of the break clause they must be fair to all parties of the rental agreement, as if they are found to not comply with the regulations established by consumer protection law then they will not be upheld. This is because before a break clause can be carried out by either party of the rental agreement, certain stipulations must typically be met first. These usually take the form of allowing the clause to be used with the provision that the rental is returned to its previous condition before the tenant moves out, or a certain amount of additional notice to be granted before the clause is enacted. If either the landlord or the tenants fail to adhere to these terms then the break clause will not be upheld.
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