Selling A Rental Property: What You Need To Know
One in five landlords plan to sell, citing increased regulation and less favourable tax treatment as reasons, according to a recent survey by a leading building society.
‘If you have a tenant, a key decision will be whether to sell with them in place or with vacant possession,’ says conveyancing manager, Kerry Walker. ‘Talking to your professional advisors can help you weigh up all the pros and cons, and plan for the additional things to consider if you want your transaction to go smoothly.’
You can sell your property subject to the existing tenancy, which means your buyer will effectively step into your shoes as landlord. In contrast, if you sell with vacant possession, you must ensure your tenants leave and the property is empty on completion. Deciding which is right for you will depend on your personal circumstances and the market for your property.
Selling with a tenant in situ or vacant possession
Selling subject to an existing tenancy may reduce the number of potential buyers, as homebuyers may struggle to obtain mortgage finance or simply not want the hassle of having to evict your tenant. Your main market is likely to be other property investors, although they and their lenders will have specific criteria to meet. On the other hand, if your property is in an area popular with renters and your tenant has a good credit history, this could be an attractive proposition for an investor.
Keeping your tenant means you will benefit from their rental income right up until completion, which could be advantageous depending on how long your property takes to sell.
You could decide to offer potential buyers both options, although the existence of a tenant, even if you agree to get them to move out, may still put off someone who wants to move in very quickly.
Obtaining vacant possession
If you decide to sell with vacant possession, you must ensure your tenants leave by the completion date you agree when you exchange contracts. On that date, the property must be clear of all their possessions and in the same physical state as when you exchanged. If this is not the case, you may need to delay completion and pay the buyer compensation.
If your tenants have a fixed-term tenancy, they can remain in your property until the end of that term. In addition, you must give them the correct notice and wait for that period, usually two months, to expire. The rules around this are complex, and it is important to follow the correct procedures to avoid delay and additional costs. In a worst-case scenario, if your tenants refuse to leave, you may have to go to court to get a possession order.
Fortunately, most tenants are cooperative. You may even find they want to leave early if they know you are selling. It is important to keep your solicitor informed, so they can consider what action to take to protect you, for example, if your tenants say they will leave but then change their mind.
Obtaining vacant possession will, inevitably, impact on timescales. As your solicitor, we can advise on how best to achieve your goals with these constraints. For example, depending on your circumstances, and those of your buyer, you may postpone giving notice to your tenant until you have exchanged contracts and agree a delayed or conditional completion date.
Selling subject to an existing tenancy
If you sell with your tenant in place, you will avoid having to serve notice and the resultant delay. However, there are other things you will need to do to get your property ready for sale. For example, buyers will expect evidence the tenancy is correctly documented and that rent payments are up to date. So collate this information, ideally before you put your property on the market.
As a guide, you should include details of any tenancy deposit, inventory, gas safety certificate, electrical safety or portable appliances tests and any notices or correspondence with your tenant. Check the requirements with your solicitor and discuss your plans with them early on. Following the correct procedures, for example, on the transfer of any tenancy deposit, can be complicated. So, make sure your conveyancer has experience in this area. As your solicitor, we can deal with all the formalities necessary for a seamless transfer to your buyer.
Most tenancy agreements require the tenant to allow viewings, subject to notice. However, collaborating with your tenant and taking account of their preferences will encourage them to keep your property tidy and presentable, which is especially important when there is a planned viewing.
Similarly, most tenancy agreements allow you entry to repair and redecorate. However, you should give sufficient notice and not interfere with your tenants’ use of their home. If you plan to undertake major works, you may need to negotiate arrangements with your tenants, or bring the tenancy to an end so you can have unrestricted access.
Tax and SDLT
If you sell your rental property, you may have to pay capital gains tax on any profit, although there are certain tax reliefs and exemptions. It is important to obtain independent financial advice from someone who fully understands the rules and how they relate to your individual circumstances.
Stamp duty land tax, or SDLT, is not usually payable by the seller. However, it could impact on your plans in the future. Higher rates of SDLT are payable on the purchase of additional properties. So, if you plan to buy another property, discuss this with your solicitor as how you structure this, and the order of the transactions, could affect your tax liability.
How we can help
For further information on buying or selling your home, or a rental property, please contact Kerry Walker, our conveyancing manager, at Kerry.email@example.com, Teresa Abols, at Teresa.firstname.lastname@example.org or Helen Bond, at Helen.email@example.com. Alternatively, you can call the team on 0345 373 3737.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since the publication of this article.
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If you have a legal matter you wish to discuss don’t hesitate to get in touch. You can call us on 0345 373 3737 email us firstname.lastname@example.org with your question.
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Content correct at time of publication.