What to consider when buying a property subject to an Assured Shorthold Tenancy?

So you’ve identified an investment property you want to buy, but it already has a tenant living there on an assured shorthold tenancy. How do you safeguard your rights over the property as a new owner and landlord?

If the tenant was originally granted an assured shorthold tenancy (AST) under the Housing Act 1988 (HA 1988), and no new contract was agreed when the fixed term expired then they will now be living in the property under a statutory periodic assured shorthold tenancy. Statutory periodic ASTs can be brought to an end by the legal landlord serving a Section 21 notice. However you will first need to make sure that the vendor/previous landlord took a deposit from the tenant, when the tenancy was first created, and that this was dealt with by the then landlord in accordance with the rules relating to tenancy deposit schemes.  If not, this may preclude the service of a Section 21 notice. In this case it would be advisable to require that the vendor effectively recovers possession of the property before you exchange contracts. 

If a deposit has in fact been taken from the tenant, you will still need to check if, depending upon the rules of the particular scheme, this can be passed over from one landlord to another. If you do purchase a property with a sitting tenant under a Statutory AST, then the purchase will be subject to this existing tenancy and you will need to notify the tenant of the your details, as the new landlord, once the purchase is completed.

Arguably, in order for you as the purchaser to maintain control over the tenant and to know what you are dealing with (and so as to avoid inheriting any unexpected problems), it may be that the best course of action is to require that the vendor serve a Section 21 notice to terminate the tenancy.  At the same time that the vendor serves the Section 21 notice, you can contact the tenant on a "without prejudice" basis to offer a new tenancy.  This can then take effect on the purchase of the property so that a new direct landlord and tenant relationship is created.  Creating a new tenancy at this time, allows you to make sure that any deposit paid by the tenant at the start of the new tenancy is held in compliance with the rules relating to the tenancy deposit scheme.

For further advice on assured shorthold tenancies or any other Landlord and Tenant matter including Leasehold Enfranchisement our team of specialists are here to help.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.

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