Buying a Tenanted property with Section 21 served by current landlord

by Readers Question

9:38 AM, 11th December 2015
About 3 years ago

Buying a Tenanted property with Section 21 served by current landlord

Make Text Bigger
Buying a Tenanted property with Section 21 served by current landlord

I am in process of buying my first Buy to Let investment property. The current tenants have been living in the property since June 2013. Current rent is £695 per month which is arrears. benefit

The tenants are on housing benefits and we can see from rent statements that the estate agent receives £569 each 4 weeks, 13 payments in a 12 month period with shortfall paid by the tenants.

However, the tenants have history of paying the shortfall rent on adhoc basis and current rent outstanding c £182 at present. We are in final stage of completion and have just found out that the tenants were served a Section 21 notice in March 2015 however the landlord decided not to enforce this and decided to sell the property with BENEFIT of tenants.

I am going to set up a new tenancy agreement effective from completion date and asked the estate agent to transfer existing TDS deposit to us.

So could anyone suggest whether should be aware of anything else before going ahead with purchase.

Many thanks

Rupang



Comments

BTL NORM BUYER

11:11 AM, 11th December 2015
About 3 years ago

Hi Rupang
I have had Benefit tenants who were intermittent payers. Eventually I had to go to court, and even though an order was made against them they stopped paying. My advice is cut your losses and pull out of this purchase. You are destined for trouble!

Alison King

11:32 AM, 11th December 2015
About 3 years ago

£182 in arrears is not very much and more than covered by the deposit. I would be inclined to want to find out more about the history and see how serious the arrears have been in the past. Generally I think as long as the tenant is basically honest and looks after the property, occasional short term small arrears are tolerable. During periods of arrears it's important to communicate frequently with the tenant and make sure they have a plan for payment.
As their new landlord you would have an opportunity to set down your own codes of conduct and if it was me I would tell them upfront that you intend to be very strict about the rent.
You would be taking on a risk. But there is always a risk and voids are more costly.

Gary Dully

11:32 AM, 11th December 2015
About 3 years ago

I know this is your first BTL, so congratulations and I wish you a successful and rewarding future.

Now brace yourself, because you have a problem.

You have a potential liability of MINIMUM of 5-7 months of rent never being paid by your new tenants, if they know how to navigate the legal system and the trashing of your property as they leave.

If they go to CAB or the council, they will probably be told to sit tight and not make themselves intentionally homeless or they won't be rehoused.

You have a "tired" landlord legacy to deal with, which are your prospective new tenants.

1. How do your prospective new tenants intend to clear their arrears?
2. They can't be forced out legally without a County Court Order, possibly followed by a HCEO or County Court Bailiff, so are they prepared to have their LHA or Universal Credit paid directly to you or leave without Court Proceedings.
3. How do you feel about going into a County Court and going through an eviction process and possibly losing on a technicality?
4. What does your solicitor advise you to do, how much will it cost if they evicted for you?

£182 in your new World seems a small amount of money, but to those tenants on benefits, it may be a mountain of debt they cannot ever pay back or don't intend to.

If I were in your position, (after about 18 court cases), i would ask the current seller to reduce his price by 6 months rent as a minimum and the legal fees you may end up having to pay such as PCOL fees, currently £250 for a DIY eviction or 6 months arrears + your solicitors fees if they do it + the potential void period to re-rent with a letting agent.

There will be many on this forum who will advise you, to run away from the deal.

The emotional pull of this 1st deal is something you may never feel again, but you are being treated by the current owner as a "mug", for their mismanagement of a straightforward eviction process.

Get legal advice from your solicitor at once.

Your seller will drop the price, because they probably know how hard it will be to resell.

If they don't - this is where you have to become a professional business landlord and analyse your situation without the emotion and excitement you are currently going through.

Do the tenants have a guarantor? - will they clear the arrears?

Those arrears will get worse if you aren't firm in dealing with them.

I do not envy your situation in regards to the tenant legacy, but I truly wish you the best of luck in a brilliant industry that has been rewarding but at times also very challenging.

Kelly Joanna

12:02 PM, 11th December 2015
About 3 years ago

I would have probably insisted on vacant possession in this instance; however, the original terms of the tenancy are still binding. The section 21 will last for up to twelve months as long as possession proceedings are brought before the expiration of the S21. Can the current owner not get them out and you simply delay completion?

Sath Vaddaram

12:13 PM, 11th December 2015
About 3 years ago

I have dealt with same situation in the past. The way I understand is that the new landlord must serve the new notices on the existing tenant as the section 21 served by previous landlord voids upon getting the ownership of the property. Hence the new landlord (purchaser in this case) must serve the section 21 again in order to enforce in the court.

I hope this clarifies the situation and other issues surrounding the situation has already covered by other members those I don't want to duplicate.

Michael Barnes

13:47 PM, 11th December 2015
About 3 years ago

Reply to the comment left by "Sath Vaddaram" at "11/12/2015 - 12:13":

Please can you provide reference to the law (statute and/or case law) that says S21 becomes invalid on transfer of ownership?

rupang shah

13:59 PM, 11th December 2015
About 3 years ago

Thank you all.. I am actually getting this property around 8-10% cheaper than normal market rate ( that was 5 months ago when the offer got accepted, so should have gone up since then). Obviously, that time I wasnt aware about arrears (normal rent is £695 pcm) and also notice section 21. Also, find rent history for last 6 months (May -£450, June - £569.76, July - £694.76, September - £695, October - £637.73). We have now certainly make up our mind to get the property vacated after completions ( as the current owner wanted to sell with TENANTS). We are not going to set up new tenancy agreement but will issue notice section 3, section 48 and section 21. I would appreciate if one can advice what will be maximum time frame and how much money (including loss of rent, court fees any other fees) we are looking at if the tenants refuse to vacate easily. Having property on vacant position is not possible as the current owners wanted to sell with tenants as part of sales conditions.

Kelly Joanna

14:28 PM, 11th December 2015
About 3 years ago

Reply to the comment left by "rupang shah" at "11/12/2015 - 13:59":

it depends how busy the courts are. Once you have the hearing, they can turn up to defend the eviction however, section 21 is a compulsory ground so assuming the tenancy/notices are present and correct, you can expect the judge to award maximum time if they have children (48 days). If they do not leave you need to apply for a warrant for possession through the county court again, and they will arrange a bailiffs appointment. A possession hearing will cost you £280 and the bailiff £110. This is assuming they don't leave and find something else of course, they may surprise you.

Mandy Thomson

14:49 PM, 11th December 2015
About 3 years ago

If there is a new tenancy, it will be subject the new retaliatory eviction legislation which will mean you will be prevented from issuing a section 21 if the tenants raise a maintenance claim with the local authority: http://www.landlordlawblog.co.uk/2015/12/08/new-retaliatory-eviction-rules-and-an-infographic-from-arla-and-fixflo/?inf_contact_key=3d38ee77fb8811030820a23df3d7b9cff0d00f0256bde5bed21b764b17ce347e

Unfortunately, bad and desperate tenants are not above creating a maintenance issue themselves or simply exaggerating an existing one. Therefore, if you do decide to take these tenants on, would it not be prudent to simply do an assignment to transfer the existing tenancy to you as landlord?

However, as others have already said, these tenants present at least a minor risk; it is likely they will always be behind on the part of the rent they pay themselves, and it could be even worse. It's your decision as to whether you can sustain the financial risk, and the uncertainty. Also, as I already said, they could make a claim against you with the local authority and it's not unknown for vexatious tenants to take landlords to court, and even to win (I know someone personally that this happened to).

Charles King - Barrister-At-Law

14:58 PM, 11th December 2015
About 3 years ago

Reply to the comment left by "Alison King" at "11/12/2015 - 11:32":

Well said Alison!

1 2

Leave Comments

Please Log-In OR Become a member to reply to comments or subscribe to new comment notifications.

Forgotten your password?

OR

BECOME A MEMBER

Change to Universal Credit rent arrears payments

The Landlords Union

Become a Member, it's FREE

Our mission is to facilitate the sharing of best practice amongst UK landlords, tenants and letting agents

Learn More