“Bargain” property could come at a high price

Published: 29/03/2013

Landlords and property investors must exercise caution when bidding on seemingly cheap property at auction, warns landlord law specialist, GW LET.

Around 2 per cent of auctioned properties in 2012 came with ‘sitting tenants’. While this can provide the benefit of an instant rental return, difficulties can arise should the buyer wish to refurbish the property or even use the property for their own occupation, particularly if the tenant was in residence prior to 15th January 1989.

There is a strong possibility that a tenant in residence before this date is on a regulated agreement. In such cases the owner can only retain possession of the property if they can prove grounds as defined by Rent Act of 1977.

GW LET solicitor, Rob Denman, explains:

“Buying property at auction can be a great way to ‘bag a bargain’ so it’s understandable why landlords and property investors regularly hit the auction houses. However it is important to remember the age-old adage that if something appears too good to be true it usually is and a property with an existing tenant can be a legal nightmare.

“While the majority of properties are now let under an Assured Shorthold Tenancy (AST) Agreement – which allows the owner to take possession of the property when the agreement comes to an end – there are some tenants who are on a regulated agreement.

“In these cases not only is the onus on the owner to prove grounds for possession as defined by the Rent Act 1977, rent is typically preset at a low level which may not even cover the mortgage payments. In addition to this the tenant may be entitled to pass the right of occupation to a relative after they have passed away.

“It is therefore essential that anyone considering buying a property at auction does thorough research on the property before bidding; the auction house should provide a legal pack which will contain all this information. If, for whatever reason, you remain unsure by any of the information, speak to GW LET – our team can help explain everything including the potential risks.

“And should you proceed with an auction purchase our specialist legal bridging team can assist you with your transaction.”

Content correct at time of publication