When a property is sold, what happens to a tenancy?

A long form article looking at what legal protection a tenant has when a private landlord sells their property.

The sale of a property by a private landlord can cause a tenant a great deal of uncertainty and stress. A variety of problems can arise related to the sale. Sometimes the landlord suggests that the tenancy will end because of the sale. In other cases confusion can arise over who has ongoing responsibility for the tenancy.

This article will look at what happens to a tenancy when a private landlord sells the property. It will focus on the legal position in England. Housing law in Wales has changed since the introduction of the Renting Homes (Wales) Act 2016.

It is important to put this matter into context. The article will begin by examining the process of selling a property. It will then examine how properties can be sold with ‘vacant possession’ or ‘subject to tenancy’. Having explored both of these issues, the impact of a sale on a tenancy can be considered.

The process of selling a property

Selling a house can take time, it rarely happens overnight.

Even where a buyer has made an offer, there are steps which must occur before any sale completes. For a start the prospective buyer will want to undertake checks before proceeding. This will most likely involve obtaining a survey on the condition of the house. They will usually also do checks with the local authority and the land registry about the property. Following completion of the checks, a contract of sale must be agreed and signed (known as ‘exchange’). A sale will only conclude when an exchange is followed through on an agreed date called the completion date. Before exchange, a sale is often described as ‘subject to contract’. A sale which has not been completed can still fall through at any point.

So when a landlord indicates that the property has been sold it is important to check at what stage the sale has reached. For example, has the sale simply been agreed in principle or has it actually completed? If the sale has not completed, the existing landlord will remain the owner until the sale has finalised.

Selling with vacant possession or subject to tenancy

A property sold with ‘vacant possession’ means that it must be empty on the day that the sale completes.

Where a landlord sells with an existing tenant, they are selling ‘subject to tenancy’ rather than with vacant possession. This is also sometimes referred to as selling with a ‘sitting tenant’.

An empty property is generally worth more than a property with an existing tenant. The reason is that the pool of potential buyers will be bigger. For example, an empty property is more likely to attract a first time buyer who wants to move in immediately.

A landlord selling with vacant possession will need to end any existing tenancy before the sale completes. This would mean serving notice and, if the tenant remains beyond the expiry of notice, applying to court to regain possession.

The important point to consider is that the landlord may be under pressure to provide vacant possession when there is an offer to buy. The sale might fall through if vacant possession is not available on completion. This pressure will be even greater if contracts have been exchanged which are dependent on vacant possession. In this situation the landlord might be at risk of breaching the contract of sale. This could expose the landlord to a claim by the buyer for significant damages.

The pressure to sell with vacant possession is likely to place a tenant in a strong negotiating position with their landlord. One option a tenant might want to look into is negotiating financial compensation in return for a surrender of the tenancy. This will be a very risky option if the tenant does not have suitable alternative accommodation. A tenant without alternative accommodation may have difficulties with an application of homelessness to the local authority. The council may find them to be ‘intentionally homeless’. This would mean the local authority would not have a full homelessness duty to rehouse. Another issue for a tenant to check will be the impact of financial compensation on any welfare benefit claims.

What happens when the property is sold with a sitting tenant?

A tenancy provides a tenant with a legal ‘interest’ in the property they are occupying for a period of time. A tenancy is only one form of legal interest. A property can also be owned under a freehold or a long leasehold interest. Different legal interests in the same property can co exist at the same time. For example a freeholder can own a property whilst at the same time letting it out to a tenant.

When a property is sold this means that either the freehold or leasehold interest has been transferred to a new owner. A transfer of the owner’s freehold or leasehold interest does not end the tenant’s interest in the property. A tenant’s existing security of tenure will remain the same even if the property is sold. For example, an assured shorthold tenant will remain an assured shorthold tenant. The existing tenancy agreement will remain in place. The only change will be the owner of the property. The property in this case has been sold ‘subject to tenancy’ or with a ‘sitting tenant’.

Where a new landlord wants to end the tenancy, they will need to follow the same rules that the former landlord needed to follow. First notice will need to be served. If the tenant remains in the property after the expiry of the notice, the landlord will need to apply to court to regain possession of the property. The type of notice will depend on the type of tenancy. A landlord of an assured shorthold tenancy could seek to end the tenancy either;

• Using the ‘no fault’ procedure under section 21 Housing Act 1988. You can find more information on when a section 21 notice can be served on Citizens Advice’s website.
• Using the with grounds procedure under section 8 Housing Act 1988. You can find more information on when a landlord can serve a section 8 notice on Citizens Advice’s website.

On the completion of the sale of a property the new landlord takes over the benefits and commitments of the former landlord. So a new owner will become entitled to receive the rent. They will also be bound to the terms of existing agreement, such as;

• undertaking repairs
• repaying, or agreeing to the release of, the deposit at the end of the tenancy
• the contents of any inventory taken at the start of the tenancy

The new landlord will take on the statutory obligations in relation to the tenancy. For example, they will need to complete an annual gas safety check if there are gas appliances in the property.

The new owner must ensure that the deposit remains protected in compliance with section 213 Housing Act 2004. This means that the deposit must remain protected with a tenancy deposit protection scheme. Usually the seller agrees to transfer the deposit to the new owner as part of the contract of sale. In this case what the new landlord must do will depend on how former landlord protected the deposit;

• A custodial scheme might be holding and protecting the deposit until the tenancy ends. In this case protection will continue if the rules in relation to the scheme are followed. The rules will likely require the new landlord to update the scheme of their contact details. As long as the new landlord complies with the scheme rules, the deposit will remain protected.
• An insurance scheme might be protecting the deposit. Here the landlord will be holding the deposit until the end of the tenancy. In this case the new landlord will need to re-protect the deposit and reserve the prescribed information. The landlord must do this within 30 days of receiving the deposit or the completion of the sale if the deposit is not transferred any sooner.

If the deposit is not transferred as part of the sale, the former landlord will remain liable to protect the deposit.

Where the deposit is not protected in accordance with section 213 Housing Act 2004, the new landlord will not be able to rely on a section 21 notice to end the tenancy. This will also apply where the deposit is not transferred as part of the sale and is not correctly protected.

If there are rent arrears at the time the sale completes, then the tenant should speak to the new owner about payment of this sum. What happens will depend on the contract of sale of the property. The sale might involve the new landlord taking over the existing arrears. It is also possible the arrears are not transferred. In this case the tenant will still owe the arrears to the former landlord.

Duties to inform tenant of the identity of new owner

A new landlord has a duty under section 3(1) Landlord and Tenant Act 1985 to provide the tenant with a notice in writing providing their name and address. A landlord must do this within the following time frame;

• 2 months from the completion of the sale, or
• If the next rental payment is more than 2 months away, any time before the next rental date.

If the new landlord has not served notice of their identity, the former landlord and the new landlord will be jointly and severally liable for breaches in relation to the tenancy. For example, a failure to undertake repairs. The former landlord can end their obligation by providing the tenant with the details of the identity of the new landlord.

It is a criminal offence for a new landlord to fail to provide confirmation of their identity within the deadline set out above. The penalty for the offence is a fine not exceeding £2,500. A local authority has powers to prosecute landlords over this type of offence.

A tenant might want to consider reporting a landlord’s failure to the local authority. A tenant should be aware of the risk of involving the local authority. Reporting the landlord might increase the chance that the landlord issues a section 21 notice.

Conclusion

In conclusion, the sale of a property does not mean the end of the tenancy. A tenant should check how far the sale has progressed. The process for a sale to complete and ownership to transfer takes time. If the sale has not been completed then the existing landlord will still own the property.

If the landlord is selling with vacant possession then they will first need to follow the legal process of ending the tenancy. If steps have not been taken to end the tenancy, the landlord will be under significant pressure. There will be a risk of the sale falling through and a damages claim. A tenant in this situation is likely to be in a strong negotiating position. If they have alternative suitable accommodation and are happy to move then one option to consider would be to negotiate compensation for giving up the tenancy.

If the sale has completed then the new owner will take over the benefits and obligations of the existing tenancy agreement. The new owner should inform the tenant of their identity and make arrangements for collection of the rent. It is possible the former landlord will provide the details of the new owner’s identity.

It is of course possible that the new owner decides to take steps to bring the tenancy to an end themselves. The new owner will need to follow the same procedure to end the tenancy that any other landlord must follow.

Nick Donlon is a housing expert in the Expert Advice Team at Citizens Advice

The information in this article is correct as of the date of publication.

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