Selling a Tenanted Property?
Sometimes it can be easier to sell a tenanted property as is, without serving notice on the tenant to vacate. And there are plenty of property investors looking for “already tenanted” properties at auctions throughout the UK.
Selling a tenanted property – a guide for landlords. Public auction can be an ideal way to sell a tenanted property. Although you might not achieve full market value for a tenanted property versus selling vacant, there is a strong demand for tenanted properties at auction. Tenanted properties generally sell for less than vacant properties because the audience of buyers is restricted to investors only, whereas with a vacant property the audience is opened up to the whole market, including owner occupiers.
Last updated by Mark Grantham on 17th March 2022
Why sell a tenanted property at auction?
Most people are familiar with the traditional route of selling a vacant property through an estate agent as it’s the method of sale most people choose when they move house. There is no reason why a tenanted property cannot be sold through an estate agent, it just requires the estate agent to find a property investor who’s prepared to pay a fair price.
However, the issue some sellers encounter when they sell a tenanted property though an estate agent (or direct) is that the sale is at risk of falling through (or the price being reduced) because the contract of sale has only been sent to one buyer. A sale fall through or price reduction could be for any reason, including the possibility of the investor having found a better purchase elsewhere!
Why sell by auction?
✔ Sell to the highest bidder
✔ Sales don’t fall through
✔ Suitable for any property
When selling a tenanted property, public auction offers a very good alternative to a (private treaty) sale through an estate agent, not least because the fate of the sale is not at the mercy of the one, individual buyer. Auction offers the ideal way for property owners to sell at a fair price, in the quickest possible time.
Will your tenanted property sell at auction?
– Rental income is obviously very important to an investor. The investor will take into account the cost of finance (buy-to-let mortgage) and other outgoings when calculating their return on investment. If you’re selling a property with a yield in excess of 5% in London or in excess of 9% anywhere else in the UK then that will be considered a good return.
– Covenant strength of tenant – if you’re selling a property where the tenant has always paid their rent on time and there has been no history of problems, then that will look good to any prospective investor buyers.
– Property type – some investors stay clear of certain types property, regardless of the rental yield. For example, some high-rise ex-local authority properties can be difficult to re-finance so won’t be as attractive from an investment standpoint.
– Capital appreciation – for some investors this is the most important factor. Many overseas buyers invest in vacant London property (without any rental income) because they know it represents a secure investment.
Selling a (problem) tenanted property at auction
Although there are property investors that specialise in dealing with problem tenants, the price they offer will be below market value. Selling a tenanted property at auction can be a quick and straightforward way to off-load a problem, but it’s always worth looking at your options before selling at a discount; negotiating with the tenant or threatening/taking legal action against the tenant are always worth exploring first.
It’s worth noting that selling by auction is by no means restricted to problem situations. There are many perfectly good tenanted properties sold at auction, for the reasons stated in the first paragraph.
How much notice do I need to give my tenant?
Whilst it is possible to sell a tenanted property at auction, the sale price will typically be higher if you are able to sell a property with vacant possession. The audience of buyers for a vacant property will include owner-occupier buyers, who will usually pay more for a property, compared to a buy-to let investor.
The rules for a landlord serving notice to to a tenant changed during the Covid-19 pandemic. For assured shorthold tenancies (ASTs), the landlord must give the tenant written notice that they want the property back (‘notice to quit’).
The Landlord must give the tenant:
- 2 months if they gave you notice before 26 March 2020
- 3 months if they gave you notice between 26 March 2020 and 28 August 2020
- 6 months if they gave you notice between 29 August 2020 and 31 May 2021
- 4 months if they gave you notice between 1 June 2021 and 30 September 2021
- 2 months if they gave you notice on or after 1 October 2021
The landlord’s notice notice must state the date the tenant has to leave.
Visit the UK Government website for up-to-date information about serving notice to your tenant.
When selling a property that is not your own home, you may be liable to payment of Capital Gains Tax, regardless of whether the property is sold tenanted or vacant.
Capital Gains Tax is based on the difference between the amount you paid for your property and the amount you got when you sold it. There may be an exemption, or partial exemption if you previously lived in the property as your own home.
It’s advisable to take specialist tax advice, but to get an initial idea of whether you will be liable to paying Capital Gains Tax on the sale of a residential property, you might find it useful to try an online Capital Gains Tax calculator.
If you’re selling a property in the UK while living abroad, there are special rules for calculating Capital Gains Tax.