FTB buying a flat with existing tenants

ShaunX

I am a first time buyer. I've seen a flat which i would like to buy, i have a second viewing shortly and likely to put an offer in.

The issue here is there are existing tenants. The agent couldn't give me too many details but sounded like they were on a 1 year contract from Feb 2011 to Feb 2012. I'm not sure when the break clause is.

The two scenarios i see if i purchase is 1) serving notice on the tenants and living in the property or 2) letting the flat to the existing tenants. I need some advice on these scenarios.

1) Obviously i need to get more information but if the tenants signed a 12 month contract from Feb 11 and break clause kicks in after say 6months, does that mean i cannot serve notice on them until August and if it's 2 months notice i can't move them out until October? As the landlord they agreed the contract with has sold to me, can i not just serve them notice immediately to move out by August? If completion happens in June, would i be entitled to those 2 months of rent?

2) As a FTB, i would be looking to get a residential mortgage. As i am buying a property with existing tenants.. am i allowed to maintain those tenants and let the flat out and collect the rent? Will i be able to get a residential mortgage with existing tenants? What are the chances of getting a BTL mortgage as a FTB who can put down max 15% deposit?

I will discuss these further with the agents but i imagine they are not the best people to give advice so would appreciate any comments here.

Thanks

Werdnal

Its unlikely you will get a residential mortgage as you won't be living there, so lenders will only give BTL terms.

Until you know exactly what the tenancy agreement terms are, you cannot know when you will get the tenants to leave. If there is a break clause, then obviously you could issue notice to co-incide with that. If not, tenants are guaranteed tenancy until next Feb. However, the notice is not "notice to quit" - only notice that you are seeking possession. Tenant then can wait for notice period to expire and still not leave, meaning you would need to go to court for eviction and even employ baillifs to carry out the possession order - All costs you could do without.

Also, you will obviously take on all the legal responsibilities of the LL in this case. Gas safety certs, insurance (must be LL based not residential), securing deposit in one of the government schemes, repair and maintenance obligations, declaring any rental income to HMRC. Also, what if tenant defaults on the rent which you need to cover your mortgage payments?

Becoming a LL is not something to take on without learning everything first and walking into an already binding contract, with tenants you don't know and haven't had the opportunity to credit check etc, is rather worrying!

scottishblondie

1. You would need to take a look at the contract to see if it has a break clause. Not all do. Even if it does the tenants may not want to leave immediately, and you could end up having to go to court to get an eviction order. This could take several months. In the meantime you would have to comply with all the legal stuff that "proper" LLs do, including handling the deposit, getting safety certs, and paying income tax on the rent etc.

2. You will not get a residential mortgage without vacant possession, you will either need a BTL or for the vendor to get the tenants out. Unless you want to let it long term a BTL mortgage is not the best idea - you need a bigger deposit, the interest rates are higher etc.

There was a very similar thread on here about a FTB considering a house being sold at auction that had sitting tenants. The general consensus was don't do it. If you really want the flat then your best option would be to ask the vendor to persuade the tenants to leave, generally done by funding their move to a new property and probably with some kind of compensation for the hassle.

ShaunX

Thanks for the replies.

I'm not sure i am able to get a BTL mortgage so i need to look at option 1. I have a second viewing tomorrow so will try get more information.

My general feeling is that it is the seller's responsibility to get the tenants out and i will not go forward if the tenants have not left.

My concern is that the seller will not serve notice until after exchange of contracts when i have already paid my deposit. In that case, what kind of things do i need to ensure is in the contract? That the seller is selling a 'vacant possession'?

hazyjo

I doubt your solicitor would let you exchange (let alone complete) if the tenants were still in situ.

Jx

kingstreet

As your solicitor will be acting for your mortgage lender as well as for you, he will be bound to obtain vacant possession on completion. This means he will have to get assurances from the vendor's solicitor that the property will be empty on or before completion.

Sorting out the tenants isn't your business.

Knowing the agreement runs until February 2012, are you sure you want to get stuck in the middle of what could become a drawn-out process which you have no control over?

I wouldn't.

G_M

ShaunX wrote: »

....sounded like they were on a 1 year contract from Feb 2011 to Feb 2012. I'm not sure when the break clause is.Only about 20% of tenancy agreements have break clauses.

The two scenarios i see if i purchase is 1) serving notice on the tenants and living in the property or 2) letting the flat to the existing tenants. I need some advice on these scenarios.

1) Obviously i need to get more information but if the tenants signed a 12 month contract from Feb 11 and break clause kicks in after say 6months, does that mean i cannot serve notice on them until August and if it's 2 months notice i can't move them out until October? normally 2 months notice is required, at the 4 month point, to take effect at the 6 month point. But you'd have to read the tenancy agreement to find outAs the landlord they agreed the contract with has sold to me, can i not just serve them notice immediately to move out by August?No - you are 'buying' the tenancy. You become the landlord, with all the obligations that involves If completion happens in June, would i be entitled to those 2 months of rent? Yes, you would be the landlord

2) As a FTB, i would be looking to get a residential mortgage. As i am buying a property with existing tenants.. am i allowed to maintain those tenants and let the flat out and collect the rent? No. BTL mortgage Will i be able to get a residential mortgage with existing tenants?No What are the chances of getting a BTL mortgage as a FTB who can put down max 15% deposit?Possible. What is the rent and what would the mortgage repayments be>

Thanks

If there is no break clause, the tenant have the right to stay till at least Feb 2012. They have a contract! By buying the property you buy the contract and become the LL. Yes, you get the rent. You also get the responsibility. Read up about becoming a landlord.

And if they don't want to leave in Feb, they don't have to.

shimano

Tell the seller can only exchange and complete once a moving out date has been agreed between them, then factor it in as a clause for docs for exchange.

If he wants to sell to you, he's gotta sort out vacation. Assuming you want to live there, I personally wouldn't put the responsibility on you to sort it out.

BitterAndTwisted

Cancel the second viewing and tell the vendors that you will consider re-booking it once the property is vacant. Start looking for another property

ShaunX

Really? That seems rather drastic. The vendor may be reasonable. Maybe not but i like the flat so will try to find out. Certainly any offer i make will have vacant possession as a condition.

BitterAndTwisted

The vendor may be reasonable but the tenants may not be. You are not in a position to buy this property until and unless it is vacant. By the sounds of things this may not be until some time next year. Do you want to put your property-buying plans on "hold" until some time next spring, or worse, next summer?