Advantages And Drawbacks of Selling A Tenanted Property

When you plan to sell a buy-to-let property through an auction or on the open property market, you can do so in two main ways: when it is tenanted or vacant.

As many people already know, vacant is the more popular method of selling a buy-to-let property; nonetheless, a tenanted property has the benefits that make it a worthwhile option for property owners who want to sell their property and for property owners who wish to buy more commercial properties.

Selling a tenanted buy-to-let property is more complicated than a vacant sale because of the extra rules that must be followed and other complexities in the process. To help you move through the process smoothly, we have prepared this guide to selling a tenanted property to help you complete a stress-free sale.

Advantages and Drawbacks of Selling A Tenanted Property

If you have just begun selling a tenanted property or are contemplating what to do, read our top tips to help you make the most of the sale and reduce your exposure to the risks that come with the transaction.

Drawbacks

Paying a Higher Capital Gain Tax

Paying a higher capital gains tax is not necessarily a disadvantage when selling a tenanted property. However, because a tenanted property is a rather attractive investment and is likely to fetch a higher price in the market, you might pay a higher capital gains tax when selling the property. As is the case with any sale of an investment property, you can offset some capital gains taxes if you have spent money to improve the property during your ownership.

Difficulties When Viewing The Property

Per the law, a property owner must seek authorization from the tenant by giving at least 24 hours’ notice before they enter the property, unless for an emergency. Indeed, viewing and inspecting a property for sale is not an emergency. Even if the tenancy agreement had viewing clauses, the landlord is only legally permitted to conduct property viewings with prior approval.

The tenant can accuse the landlord of harassment if the viewings have not been pre-approved or are conducted in a manner that violates the tenant’s right to quiet enjoyment of their home. To avoid such conflicts, the property owner needs to discuss the matter with the tenant, check their schedule, and understand any concerns; for example, they might prefer the landlord be present as the viewing occurs.

The Sale Might Be Upsetting To The Tenant

Not many tenants will react positively when they find out that the property owner is selling their property, which can be upsetting to the tenant and lead to other problems down the line. Luckily, such challenging circumstances can be avoided by taking a proactive approach and talking honestly to the tenant about the entire process and its objectives.

Most tenants are likely to react based on the worries that they may have about their future relocation plans owing to the landlord’s decision to sell the property they live in. For this reason, planning how you will explain everything to the tenant and reassure them of your support can eliminate many bottlenecks in the sale process.

Advantages

A tenanted property is more financially attractive

Properties used as buy-to-let properties in the past can be resold as vacant residential plots when they have no improvements. Indeed, many people are willing to buy undeveloped properties like we buy any home, and the property for sale might only be on the market for a while.

On the other hand, tenanted properties have a much smaller pool of prospective buyers compared to vacant residential lots. However, this risk is mitigated by the fact that tenanted properties are a going concern, making them more attractive to potential buyers. For this reason, they might not remain on the market for long despite the limited number of potential buyers.

When the buyer purchases a tenanted property, they assume ownership of the income generated by the property. They do not need to spend money to prepare the space before a tenant moves in. When you add these two things together, it’s likely that a buyer will want to buy the property and pay more than they would for a vacant one.

Saves Money For The Seller

As happy as the buyer is to save money and buy a property already generating income, the seller also saves money. They do not suffer from lost earnings as the tenant remains on the property during the sale. In addition, capital gains are less likely to bother the seller, making it easy for them to sell the house, which also benefits the buyer and makes it more possible for them to buy the property.

Bankable Tenants

All landlords wish to find a reliable, low-maintenance tenant who can rent their property. For this reason, if your buy-to-let property already has a good tenant, you are in a better position to sell the property fast, as many property buyers will want to own the property and have a bankable tenant rent it.

Extra Considerations And The Documents Needed to Sell A Tenanted Property

By selling a buy-to-let property, you are essentially turning the buyer of the property into the landlord of the same property. Consequently, the property buyer must adhere to all the landlord’s legal responsibilities to a tenant. To meet these requirements, you will have to furnish them with all the documents that you gathered from the start of their tenancy, as shown below:

Inventory of furniture: When selling furnished properties, the current landlord must provide the property buyer with a complete inventory of the furniture included in the sale. Ordinarily, furniture is part of the tenanted property.

Rental deposit: The current landlord should hand over the tenant’s deposit to the new property owner and provide evidence that the deposit has been well safeguarded through a governmentally approved online scheme.

Right to rent evidence: The current landlord is legally expected to gather and keep all relevant evidence that the tenant is allowed to rent a property in the UK. After the sale process is over, this information and the related documents must be given to the new owner.

Signed tenancy agreement: The current landlord is also expected to hand over a copy of the signed tenancy agreement, which captures all the tenancy terms, to the new landlord

Safety certificates: The current landlord should hand over safety certificates like Gas Safety Inspection Reports, Energy Performance Certificate (EPC), and Electrical Installation Condition Report to the new property owner. These safety reports must be valid and show when they need to be renewed.

Legal notices: The current landlord must hand over any legal notices given to the tenant before, together with any other relevant information, such as how the notices were issued, to the new landlord to issue future notices or evictions.

Repair information: Also, the current landlord must hand over to the new landlord all information related to any ongoing or outstanding repairs that the tenant has requested.