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Regulated tenancies occur when a landlord agrees to let a tenant have the right to live in a house or flat often for the duration of their lifetime, and typically with a low fixed rental charge. These homes can be seen as less attractive given the difficulty in removing the tenant, although if you follow certain steps then you may be able to sell quickly.
- What is a property with a regulated tenancy?
- Why are homes with regulated tenancies harder to sell?
- Pros of selling a property with a regulated tenancy
- Cons of selling a property with a regulated tenancy
- Methods for trying to sell property with a regulated tenancy
- Frequently asked queries about selling a home with a regulated tenancy
What is a property with a regulated tenancy?
There are many properties in the UK that have tenants, where the owner does not live in the premises and instead someone else resides there in exchange for paying the owner a monthly rent. It’s the typical landlord and tenant situation that is common throughout the country, although properties with regulated tenancies are unique compared to other rental agreements.
The duration of most tenancy agreements can vary, but with a regulated tenancy, the person who pays rent to live in the property has the legal authority to reside there for their lifetime. As the government explains on its website, if you are a private landlord who does not live in a property and a residential tenant lets it from you and the agreement started before January 15, 1989, then the Rent Act 1977 says this will usually be a regulated tenancy.
And there are no restrictions on whether the rented property must be unfurnished or furnished to qualify, if the agreement was before the cut-off date then it’s likely a regulated tenancy.
Regulated tenancies are often charged at much lower rents than a landlord might be able to get for newer rental agreements. For example, renting a flat present day might cost £500 per month, but some old, regulated tenancy agreements could charge as little as £1 per month.
If you own a home with tenants and the rental agreement started after January 15, 1989, then you most likely instead have what’s known as an assured tenancy or assured shorthold tenancy, for which you can charge the market rate rent and the person living in the property does not have the lifetime residency right that a regulated home would provide them.
Why are homes with regulated tenancies harder to sell?
There are a number of reasons why a home with a regulated tenancy might be considered harder to sell, creating a host of setbacks for people who might be interested in making an offer. It’s important to understand these various drawbacks before trying to find a buyer for the house or flat.
If a prospective buyer would want to be a landlord of the property, they might be turned off by the fact that the person with the regulated tenancy agreement is effectively impossible to evict. This means they will be stuck with whoever is living in the property currently, which makes it impossible to advertise for new tenants, or rent to friends or family or the landlord.
In this scenario, the new landlord buyer would also have to abide by the rental rate set out in the regulated tenancy agreement. This can be a major financial hurdle for someone looking to buy your home and then significantly increase the rent to make more money from it every month. Instead, by law they’ll have to accept whatever likely discounted rate the tenant is paying.
And another reason why some regulated tenancies are considered harder to sell is that they give a large number of rights to the tenant, with few similar benefits for the landlord.
Some of the many rights that people living in regulated tenancies have include that they cannot be evicted without the landlord getting a court to issue a possession order – and the orders are only ever granted in limited situations, if the tenant dies then their next of kin can usually take on the regulated tenancy and keep with the existing terms of the agreements, there are major restrictions on the landlord being able to raise the rent, the landlord will be liable for taking care of significant repairs to the property, and various other conditions.
Many would-be owners will find these many restrictions and conditions to be extremely limiting, and it will be enough to make them lose interest in thinking of purchasing your property.
Mortgage lenders are also likely to be sceptical of issuing loans for someone to buy a home with a regulated tenancy, because they will see it as a risky investment due to the resident being able to stay there for a lifetime at a reduced rent. Lenders want to know that they will have the ability to recoup the costs of the loan in the event that you fall behind on your mortgage payments and they move to repossess the home. Many mortgage providers might believe that homes with regulated tenancies are simply too poor an investment to give a buyer a loan.
Therefore, even if you find a person interested in buying your property, if they cannot get a mortgage then the sale may fall through because they won’t have the funds to purchase it. However, as explained later in this guide, this doesn’t need to a barrier to selling if you use a fast buyer like LDN Properties that typically has the funds to buy your house or flat immediately.
Pros of selling a property with a regulated tenancy
Although the previous situation might make it appear that aren’t any benefits with owning a property that has a regulated tenancy, according to Shelter, they still have several pros that make them attractive to certain buyers. Educating yourself on these various advantages can help you in trying to entice people into making a serious offer for the home, or countering any concerns that they might raise about it whilst on a viewing.
Reliability of long-term tenants
The fact that regulated tenancies have a resident who has the legal ability to reside in the property for their lifetime can be very assuring to some potential buyers who would become the new landlord. The would-be buyer could have very little time, money or interest in trying to find tenants for the home and might like the idea of a reliable and long-running tenant. Such tenants might be less problematic and have a greater interest in keeping the home well-maintained.
May be seen as a viable long-term investment
There are some business-minded property buyers who see homes with regulated tenancies as viable long-term investment options. The focus would be less on trying to make a large profit from the existing discounted rent that the tenant likely pays. Instead, a buyer would rely on the fact that the property is likely to grow in value in the coming months and years, and that once the regulated tenancy eventually expires, they will be able to sell the home at a profit.
Tenant might be willing to negotiate leaving the home
And even if a buyer is interested in finding new tenants who would pay market rate for the property, they might not be discouraged by the fact that it currently has a regulated tenancy. That’s because it’s perfectly legal for the landlord to make a financial offer for the existing resident to end their tenancy, and some might actually accept depending on the offer. The tenant would then have to give formal notice to the landlord about ending the agreement.
Cons of selling a property with a regulated tenancy
Unfortunately, the reality of the UK property market is that even though properties with regulated tenancies may have some attractive elements for prospective buyers, they can be harder to sell. There are various reasons to blame, although most of them are financial in nature.
Might be considered a poor investment in the near term
Although a home with a regulated tenancy may be seen as a viable long-term investment based on the property growing in value and being sold after the tenancy ends in the coming years, they are not usually seen as good near-term investments. That’s because of the difficult in evicting tenants in order to move in new tenants who will pay market rate for the property. Many landlords will therefore not have much interest in buying a regulated tenancy, because they will know that the tenant is there for a lifetime whilst paying a usually heavily discounted rent.
Mortgage lenders might not issue loans for buying the home
It can be harder to sell a property that has a regulated tenant if buyers can’t get mortgages to complete the purchase. As described earlier in this guide, many home loan lenders will consider houses or flats with regulated tenancies to be risky or poor investments through which it will be almost impossible to recoup their money if the buyer defaults on their mortgage payments. If nobody can obtain the funds to purchase your property, it will naturally continue to remain unsold.
Limited ability for buyers to change tenancy agreement
The barriers in evicting a current tenant from a regulated agreement are very high, and usually you can only get a court order in situations where the tenant has fallen egregiously far behind in their rental payments. And regulated tenants usually have very favourable terms and conditions in their agreements, such as cheap rent, and they will generally be unwilling to negotiating changes to that deal with a new landlord.
Methods for trying to sell property with a regulated tenancy
When you are ready to sell your property with a regulated tenancy, the biggest decision you’ll have to make upfront is which method you would like to use for selling.
There are typically four options that are available: trying your luck with a property auction, selling your home through an estate agent, using a fast home buyer, or trying to sell the home on your own. You’ll find that there are advantages associated with each option, and there are also some potential downsides to a few of the choices that are also important to discover.
In preparing to sell your home you should write an honest budget that details exactly how much money and time you can spend on trying to find a buyer. This will help you to find out which of the various methods is the one that best matches your wants and needs for selling your home.
Trying your luck with a property auction
A property auction can be seen as a gamble, because you’ll never know the final sale price of your home until the day of the auction. And it’s entirely possible that you won’t get any bids on the property, which means that it does not sell and you will have to start all over with trying to find a buyer. That can be a major setback if you need to sell the home as fast as possible.
An auctioneer will create a listing that features text descriptions of your property’s main features, along with photographs of the interior and exterior designed to make it look enticing to buyers. The auctioneer will advertise this listing on their website, in local media and elsewhere with the goal of attracting interest from buyers. This can take at least a few months from the day that you decide to list your home for sale and the day on which the auction is brought to an end.
Some auction houses will give you the choice between a traditional auction where the listing is advertised for several weeks or longer and then bids are received on a set day and time, and when the auctioneer lowers the gavel the person with the highest bid is the winner and buying your home. Or you might want to try the modern method, in which your listing can receive bids for a set period of time – often many weeks at least – until a predetermined deadline.
Before listing your home for sale, the auctioneer will ask you to choose a reserve price. This is the lowest amount at which you can accept your property selling. It’s vital that you select a reserve price that will still produce a profit for the sale, even after paying the auctioneer the commission that they will charge for the work that they do in selling your home.
And auction houses often make sellers pay commission, which will be deducted from the sale proceeds, reducing your profit. It’s possible that you might be able to make the winning high bidder pay some of the seller’s fees, so you should check with individual auctioneers to see if this might be possible.
If your home sells at an auction, the winning high bidder generally has about 28 days to complete their requires steps, such as paying you the proceeds and completing all of the mandatory legal paperwork. When combined with the time it takes to market your listing before the auction, it can make the process last at least a few months. This may not be the perfect choice for anyone who wants to sell their property within just a few short weeks.
Selling your home through an estate agent
Another way to sell your home is using an estate agent, and they will do similar work to an auctioneer in creating a listing for the property and advertising it in local media, their office, online and elsewhere. Estate agents are usually responsible for organising viewings for potential buyers to tour your home’s interior and exterior, and often leading these viewings.
Perhaps the biggest downside of selling via an estate agent is the amount of time it can take. It’s not unusual for homes sold through this method to remain without a serious offer for many months and sometimes more than a complete year. That can be very problematic for those homeowners who need a speedy sale for financial reasons or coping with other situations.
Estate agents will also charge commission for their work, although this will often be at a lower rate than auctioneers. These charges will have to be subtracted from the property sale proceeds in order for you to find out your final net profit.
It’s also possible that some estate agents might have zero experience with selling homes that have regulated tenants, and this means they could find it hard to generate any interest from prospective buyers, which means your property will continue to remain unsold. Query estate agents on their past success rates with selling properties that have regulated tenants, because honest companies will be happy to tell you whether or not they have been able to do so.
Also beware that some estate agents might quote you an elevated price for how much they think they can sell your home, even if they secretly realise that it will only find a genuine buyer at a lower value. They use this trick in order to secure your business because they want the commission that you will pay if the home sells. To avoid falling for this situation, ask a number of estate agents for free quotes for selling your home and also look at prices of homes like yours on property sales websites, and calculate the average of those values. This should give you a much more accurate idea of the general price at which your home might be able to sell.
Using a fast home buyer
Fast cash buyers are companies like LDN Properties that have the financial resources to purchase properties immediately, without having to wait potentially many months to first obtain a mortgage for buying your home. As a result, quick buyers can typically finalise the entire process of purchasing a flat or house within a handful of weeks, and that includes paying owners their proceeds and exchanging contracts. This often makes fast buyers usually the swiftest choice of the various methods of selling.
Another perk of selling your home to a quick buyer is that the legitimate companies will never make you pay any commission or other fees, so you are guaranteed to receive the complete proceeds of whatever sale price the fast buyer might offer for purchasing your property. That compares very favourably to using estate agents or home auctioneers, where you will have to pay commission that will be subtracted from the sale proceeds, reducing your net profit.
Fast buyers often have plenty of experience with making competitive and quick offers for buying almost any type of leasehold or freehold home – even homes with noisy neighbours. It doesn’t matter what the property’s condition, size, age, type or shape might be, as these companies can buy practically anything. This makes fast buyers a great choice for a property that might have a feature that some other buyers could consider to be problematic, for example a home with a regulated tenancy agreement or an empty property.
You also get other important benefits of selling to a quick buyer, such as dealing directly with one serious buyer without the risk of the sale falling through. You’ll only have to agree to viewings where a representative from the fast buying company will tour the interior and exterior of your home. Many homeowners find this much more favourable than other methods of selling where they might have to endure many viewings.
The advantages of using a fast buyer therefore combine to make them often the perfect choice for those homeowners who are looking to sell and also doing so quickly.
Trying to sell the home on your own
Another way you could try to sell your home with a regulated tenancy is on your own, which means you would be responsible for the marketing, scheduling and hosting viewings, reviewing any offers, and overseeing the final stages such as signing all of the legal paperwork. This can require a lot of time, money and energy and it can also be a very stressful approach.
It’s only recommended to try this method of selling if you either have plenty of experience with selling homes, or if you know friends or family that have expertise with selling properties and they are willing to help you find a buyer for free or at significantly reduced rates.
You might be waiting many months or longer to find a buyer, and there’s always the risk that what seems like a serious offer will ultimately fall through. Sadly, you cannot try to sue to force the completion of a property sale unless you and the seller have already exchanged contracts. If the sale collapses you’ll have to start all over with trying to find a buyer for your home.
Top queries and answers about selling a regulated tenancy house or flat
Property owners thinking of selling quickly usually have a few questions for us, ranging from the amount of repair work required through to problems with subsidence. Here are some of the main questions we’re asked when selling property with a regulated tenancy:
Your top questions when selling property with a regulated tenancy
The vast majority of residential property lettings by private landlords who do not live on the premises that commenced before January 15, 1989, are considered to be regulated tenancies, where the tenant has the right to live in the home for their lifetime, typically at a reduced rent. This means the landlord effectively has no lawful way to evict the tenant from the home.
Yes, from January 15, 1989, onward almost all new residential property lettings are defined as either assured shorthold tenancies or assured tenancies, and regulated tenancies can only be obtained in a very narrow set of circumstances. These types of properties are considered more attractive to potential buyers than houses or flats that have regulated tenancies.
Many buyers are wary of purchasing these properties because there is often no legal way for a landlord to remove the tenant who has a lifetime right to live in the home. As a result, many if not all mortgage lenders are likely to refuse to issue a loan to buy the property, because it is considered to be much less valuable than a vacant home or property with a regular tenant.
Yes, even though properties with regulated tenancies might be considered less attractive to many buyers, they still have certain benefits for some people. The tenants in these properties are generally considered to be more reliable and easier to live with than those in shorter-term tenancy agreements, and they can therefore be a stable option for residing in the home.
Sometimes, and it will typically depend on the specific terms of the initial regulated tenancy agreement between the landlord and the tenant who has the right to live in the home for their lifetime. If a tenant’s next of kin is allowed to live in the property then they will also likely be able to do so for their own lifetime, although likely now having to pay an increased market rate rent.
Not necessarily. If you try to sell your property through an estate agent or auctioneer then yes, you will be expected to pay them commission for their work, and this will have to be subtracted from the sale proceeds in order to find out your net profit. But if you sell your house or flat to a fast buyer like LDN Properties then you’ll pay zero fees and will get to keep all of the proceeds.
If you use an estate agent then you could be waiting many months or even longer before you get a serious offer from a buyer. Selling through an auction can often take at least a couple of months. Choosing a fast buyer is often the speediest option because it should only take a handful of weeks to complete the process.
