Selling a tenanted (buy-to-let) property

If you own a buy-to-let property and want to sell it, you can either sell it as a tenanted investment or as a vacant property. If selling as vacant, you will have a larger potential pool of buyers as you won’t be restricted to just the investment buyers.

Depending on the local market you may get a better price if the property is sold with vacant position but in many areas of the country, with the shortage of property, there is often little difference in price between the two options. Your agent will be able to advise you as to whether there is a significant difference between the price that could be achieved if sold to an investor and the price if sold to an owner-occupier.

A few things to consider when selling are:

Your tax position:

Investment properties are normally subject to capital gains tax and, depending on your circumstances, there may be allowances and exemptions that can be applied to reduce this liability. Capital gains tax can be up to 28% of the increase of the value of your investment and so the final tax liability may impact your decision to sell, as it will reduce the net amount of money that you are left with after the sale.

If you have made capital improvements to the property during your ownership you may be able to offset some of the tax liability as well as using your annual allowance for capital gains.

Your finance position:

If you have a mortgage there may be penalties if you sell before the end of the fixed term of your mortgage product. If you are close to the end of the fixed period for the mortgage, don’t forget that it will normally take a couple of months for the property to go through the conveyancing after you have an accepted an offer and it is only when the sale completes that you will redeem the mortgage.

Your tenancy agreement:

  • Is the legal contract between the landlord and the tenant. Even if the property is sold this does not mean that the tenant needs to leave. A new person can take over the role of the landlord.
  • Most tenancy agreements allow for the property to be viewed during the last month or two of the tenancy and you should check if this is specified.
  • Will give the tenant the right to ‘quiet enjoyment’ during the tenancy which means that you can’t just assume that you can have access to do viewings throughout the tenancy.
  • If you are not in the last period of the tenancy and the agreement does not allow for viewings you may be able to negotiate reasonable access by agreement with your tenant.
  • Specify what notice you need to give to your tenant if you want to take the property back. There may be a break clause which will allow you to serve notice before the end of the agreement, but without one you may need to wait until the end of the tenancy to get the property back. If the property is let on an Assured Shorthold tenancy agreement, they will also have a legal minimum right of occupation for six months.

Your tenant:

If you decide to sell as investment, talk to your tenant and reassure them about the process. If the tenant is well informed they are likely to be more co-operative and understanding during the process. It may even be the case that they may be interested in purchasing the property themselves before you put it on the market saving you time and costs.

As a landlord, selling a property with a tenant in situ can have a number of advantages:

  • You will be able to maintain your rental income up until the day that the property sale completes
  • The purchaser will be able to benefit from rent coming in from day one
  • If for any reason the sale fails to complete you will still have the surety of the tenants’ income
  • Good tenants are often hard to find and so worth keeping in place if the buyer is looking for an investment
  • An investment buyer is often a more experienced buyer and therefore selling a tenanted investment is usually an easier transaction to process
  • Investment sales tend to conclude more quickly as they are more often information-based purchases than emotionally based purchases

There are some additional considerations when selling a property that relates specifically to the letting:

  • If you have paid an agent a commission up front for finding the tenant, check what will happen to the money if you sell the property? It may be possible to recoup the commission from the buyer for the remainder of the tenancy, after the property is sold, as a negotiated term of the sale.
  • If the property has been let furnished, you need to supply the buyer with an inventory of the items in the property and agree on a price for them if you are selling them with the property. If you have let the property furnished and it is being sold tenanted then practically speaking, you will probably need to include the furniture in the sale
  • If you hold the tenant’s deposit, this will also need to be transferred to the new owner
  • An investment purchaser will be keen to ensure that you have all the right tenancy paperwork, which will include but not be limited to:
    • Evidence of the tenants’ Right to rent
    • A signed tenancy agreement showing the terms of the tenancy
    • Certificates showing the Gas and Electric installation is safe
    • Confirmation that the deposit has been properly protected and the right paperwork given the tenant within the right timescales
    • If you have served any legal notices on the tenant, you will need to provide copies and confirm how they were issued
    • Details of any current repairs or complaints about outstanding repairs