Is vacant possession the best purchasing strategy for property investors?

When buying or selling a property investment with vacant possession or with a tenant in situ there are different implications for the purchase or sale. 

It’s important for property investors to know what vacant possession is. We will cover what it means for buying and selling a property investment and if it’s an effective purchasing strategy for property investors. 

When searching for a property investment, you may come across the term “vacant possession”. This term has legal meaning and is also used for marketing.

A property sold with vacant possession means the property must be empty on completion day. This means no tenants should remain in the property and no belongings should be left besides those that have been agreed to be left in the contract. 

In England and Wales, the Standard Conditions of Sale allow a property to be sold with or without vacant possession. If a property sale were to be without vacant possession, this typically is because tenants occupying the property have an assured shorthold tenancy agreement that runs beyond the competition date of the sale. The buyer would be agreeing to take ownership of the property with a tenant in situ.

Sometimes an expected date of vacant possession will be included in contracts. This is the date the seller has agreed the property will be vacant and ready to occupy. Delays could still happen. However, it carries legal implications if it’s fulfilled

Note: If any items are being left in the property after completion, like white goods, these are typically set out in the fixtures and fittings form, Memorandum of Sale or in a private agreement.

Selling with Vacant Possession

When selling a property with vacant possession, you or your tenants must not be in the property, along with any personal belongings or rubbish, by the day of completion. At the point of exchanging contracts, this becomes a legal obligation. 

The failure to do this would breach the contract, and the buyer could make a legal claim against you. This includes anything stopping the buyer from immediately occupying the property. As the seller, you have a responsibility to ensure the property is fully vacated.

If you have tenants, it’s your obligation to ensure they are moved out prior to completing. If your tenants don’t move out on time or leave possessions in the property, this again could result in a claim from the buyer. This could delay the property sale completing, which will delay payment or could even lead to a cancellation of the contract.

Buying with Vacant Possession

When searching for a property investment, you may come across properties listed with “vacant possession upon completion” or “available with vacant possession”. This means if you buy the property, the seller can contractually ensure you there won’t be any tenants or belongings left in the property upon completion.

If you’re buying a property with vacant possession and there are tenants currently living in the property, this would mean the seller has agreed to terminate or not renew their tenancy agreement. This seller will be required to ensure the tenants are moved out prior to exchange or completion. 

When buying a property with vacant possession, some buyers prefer insisting the property is vacant prior to exchange taking place. If this isn’t possible, your conveyancer could include a clause in the contract allowing you to inspect the property on the day of completion to ensure the property has been fully vacated.

Note: With vacant possession, the property should be left empty on the day of completion by the time stated in the contract. This is usually 2pm. 

Risks Involved with Vacant Possession

There are risks involved when buying a property with vacant possession that currently has a sitting tenant. There’s a chance that the tenants could refuse to leave the property or be unable to move their possessions by the date agreed. 

Even without tenants, a seller who has agreed the sale will be vacant possession upon completion may take extra time to empty the property for some reason. Their own move could fall through at the last minute. In these cases, the buyer should be able to make a claim.

The main risk for the seller is receiving a claim if their tenants don’t vacate the property on time. This is why it’s recommended to schedule the tenancy to end well before the completion date or ideally before exchange of contracts.

This provides time to help ensure the required property standard before the completion date arrives. You may lose some rental income if the property sits empty for a period of time. However, the costs could be higher if the tenants don’t move out by completion.

Buying or Selling with a Tenant in Situ

Some property investors may wish to buy a property without vacant possession and with a sitting tenant, or tenant in situ. Buying and selling a property with occupied tenants is happening more often. However, it’s still more common for properties to be sold without a tenant in situ.

There are different legal implications when buying or selling a tenanted property. It’s recommended to talk to a conveyancer with experience in these kinds of property sales to help you understand the differences in the transfer of ownership.

If a property is going to be sold with tenant in situ, the seller will need to disclose the active tenancy agreement and any other documentation relating to the tenancy. The buyer and their conveyancer will need to examine the documents and raise any questions they have with the seller. It’s useful for the buyer of a tenanted property to know how long the tenant has been in the property and if the tenant is up-to-date on rent payments.

After the sale completes, the new owner of the property inherits the “landlord” role within the tenancy agreement. You will then take over the obligations the previous landlord had. The tenancy agreement should be edited with the new property investor’s name and details and the change in how rent will be paid. It will then need to be signed by all parties.

Note: The new property investor will also need to transfer whatever arrangements were made for the original security deposit, so they are now under your name. This should be transferred at the point of sale. If the deposit is transferred between schemes, it’s a legal requirement for the property investor to provide the tenant with the full details.

Buying a Tenanted Property

When buying a tenanted property, it’s more complicated than a purchase without a sitting tenant. There are a number of pros and cons for buying a tenanted property. It’s important to consider the benefits and risks before purchasing a tenanted property investment. 

Advantages of purchasing a tenanted property

  1. Tenanted properties usually come at a lower price due to the extra risk involved.

  2. When investing in a tenanted property, you can start receiving rental payments right away. This allows you to ideally earn rental income from the beginning and not experience a void period to start off with.

  3. If the tenant has a proven rent payment history, that can be a good sign that they usually pay rent in full and on time. Typically, properties with a tenant in situ won’t need refurbishing right away.

  4. Additionally, some of the regulations and legal requirements may have already been taken care of, which could minimise some beginning costs. However, it’s important that you check everything is in place.

Disadvantages of purchasing a tenanted property

  1. It’s important for a property investor to ask the right questions before purchasing a tenanted property to ensure they have a full picture of the tenancy agreement and property details. This will help the investor make an informed decision on whether they should buy the property or not.

  2. Some property investors may not like that they don’t get to choose their own tenant. As often an investor or letting agent would undertake tenant referencing checks. The previous property investor could have cut corners, or the sitting tenant could turn out to unreliable.

  3. Sometimes it’s more difficult to get a buy-to-let mortgage for a property with a tenant in situ. However, some lenders are happy to finance this kind of purchase as along as a new tenancy agreement is drawn up and signed.

Concluding Thoughts

A property investor should weigh up the pros and cons of buying a tenanted property or a property with vacant possession. The traditional investor typically prefers a vacant possession property. However, there has been a growing minority of property investors purchasing tenanted properties.

With either kind of property, it’s important for you to do your due diligence to ensure it’s the right investment for you. Keep in mind that every contract covering a property sale is specific to the individual transaction. 

It’s recommended to seek professional legal advice when purchasing a vacant possession property investment or purchasing a tenanted property. And a solicitor with landlord and tenant specialist experience can be particularly helpful. 

Kaylene C Isherwood

Kaylene Isherwood is a guest writer for the Property Investor Academy.

She has extensive experience writing for a number of property investment, development, town planning and estate agent websites.

With three years of experience in covering the UK housing market and property investment sector, she has written hundreds of articles and guides for property investors. She has a BA in Communication with a minor in English: Writing.

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