Buying and Selling Tenanted Property: What Happens to the Tenancy Agreement?

Buying or selling a property with sitting tenants can be appealing, but also a little daunting if you’ve never done it before – and there are a lot of misconceptions around the necessary legal requirements.

It’s one of the biggest questions we get asked about here at Portolio – so, if you landed here looking for some answers, you’ve hopefully come to the right place.

As specialists in helping people buy and sell tenanted properties, we thought we’d put together this blog post to help clear a few things up – we’ve also consulted with Paul Harper, a legal expert from leading solicitors, Lindsays.

Below, we’ve talked you through what happens to a tenancy agreement, and some of the other key bits and pieces that may be required when buying or selling a tenanted property.

Pssst! This could actually be an incredibly short article, as nothing really needs to happen with your tenancy agreement. So, although this is a long blog, don’t worry!

What happens to the tenancy agreement?

In most cases, nothing at all.

If the tenants decide to stay on, the tenancy agreement simply changes hands to the new landlord, who is, in effect, ‘standing in the old landlord’s shoes’ – and is bound by the tenancy in the same way that they were.

The tenants still retain their legal rights, and the same laws and rules are applied under the new landlord. In this way, the tenant knows where they stand and are looked after in the proper way.

That’s how it works almost all the time but, it should be said, that there are some cases where a new tenancy agreement is required by law – something we’ll go into more below.

So, when IS a new tenancy agreement legally required?

Like we mentioned above, a new tenancy agreement isn’t legally required, except for a few exceptional circumstances; for example when a mortgage lender or insurance provider stipulates it’s a condition of the new agreement.

Actually, in 99.9% of cases it’ll be absolutely fine to go ahead with issuing a minute of variation or a similar correspondence to confirm the changeover.

However, if you’re ever in any doubt whatsoever, we recommend consulting with your chosen solicitor who can advise further.

Will the type of lease you have matter?

The majority of tenanted properties being sold will either have an active Scottish Private Residential Tenancy (PRT) or a Short Assured Tenancy (SAT). All new tenancy agreements signed from 1st December 2017 will be a SPRT, which replaces the old SAT.

Should the tenanted property purchased have a tenancy agreement signed before 1st December 2017 then it’s likely a SAT will be in place. However, in terms of actions required when the ownership changes, there shouldn’t be any difference.

Pssst! The Scottish Association of Landlords (SAL) has some great resources, where you can find out more about recent changes to regulations.

What other tenancy-related documents are needed?

Just to be clear, you’ll probably find there’s a whole raft of legal documents to consider when buying or selling a property with sitting tenants (just like with an empty property).

However, in relation to the tenancy agreement itself and the requirements the seller must provide to the new landlord, the following must be supplied: 

• A copy of the AT5 (if a short-assured tenancy) and proof of it being served before the creation of the tenancy
• Details of the landlord registration (to prove it has been complied with previously)
• Any notices that have been served by the tenant, local authority, or landlord
• A full inventory of items within the property
• All compliance documents (including your EPC, Gas Safety certificate, PAT testing certificates and any appropriate warranties on items)
• Details of the deposit scheme (to ensure the deposit has been registered)
• An up-to-date rent statement
• Your HMO licence (if applicable)
• Any other relevant correspondence dating back over the past 2 – 3 years

Don’t have all of the above? Fear not; some of the above are things the buyer will be able to obtain themselves without too much difficulty. However, the seller will definitely need to supply the tenancy documentation, rent statement, inventory, and details of the deposit scheme.

Pssst! Our online legal pack will hold all of the required documents.

It may very well be in the terms of the sale agreement that they’ll need to produce these (or, at least it should be).

Advice from Lindsays

Whether you’re buying or selling, you may be tempted to take care of things yourself (such as serving notice on your tenant, drawing up agreements, marketing, or even the sale of the property), but always make sure you surround yourself with trusted advice – and know when to seek it.

Having consulted with Lindsays on this, the main advice we can give you is that if you’re ever in doubt, always consult with a solicitor to ensure you’re on the right side of the law. As a landlord (or future landlord), we’re sure you’re already aware of your responsibilities, but due diligence never hurts.

We asked Lindsays partner Paul Harper on his thoughts: “We do see people who have bought properties with tenancies as useful as chocolate teapots.”

He continued: “Things like poorly written tenancy agreements, deposits not lodged, no record of a change of tenants, with no agreement in place – or if there is one, not knowing where it is, making it very difficult to serve notice.”

Luckily this is all something an estate agent who specialises in tenanted properties can help with, to ensure that nothing like the above ever happens – and protects all parties involved.

One last thing…

If you’re the one selling your tenanted property, always be honest.

In the wise words of Paul:

“Don’t say ‘my tenant’s wonderful’ if you know he/she is really not. Making out that they always pay their rent on time when in fact there’s been a history of problems could fall within misrepresentation, and could entitle the purchaser to make a claim for damages.”

We completely agree.

In fact, it’s one of the things we check before agreeing to help any landlord sell a tenanted property, as we want to ensure buyers aren’t taking on difficult tenants that will have a bad impact on their investment.

It’s what we call The Portolio Promise (#ThePortolioWay).

Conclusion

Thank you for reading – and a huge thank you to Paul Harper and Lindsays for the advice and for making sure we got this blog spot on.

It can seem a bit daunting when first thinking about buying or selling a tenanted property, especially when it comes to making sure you’ve got all your legal responsibilities as a landlord covered. That’s why it’s always best to consult a solicitor if you’re in any doubt.

And if you’re feeling a little overwhelmed, a good, experienced estate agent specialising in purely tenanted property sales can also help guide both sides through the process – allowing you to relax a bit.

We hope you’ve found the advice above helpful, however, if you have any questions about any other aspect of buying or selling a tenanted property, please don’t hesitate to get in touch.

We’re always happy to help!  

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Written by Ross MacDonald, Director of Sales.

Get in touch on 07388 361564 or email to [email protected]