In buying with tenants ‘in situ’, we touched upon the possibility of acquiring a property with a regulated, or ‘sitting’, tenant.
This is very different from buying a property where an assured shorthold tenancy agreement is in place. A ‘sitting tenant’ is protected under the Rent Act 1977, and has more rights in law than an AST tenant.
What are a sitting tenant’s rights?
Sitting tenants have extra protection against two of the freedoms that most modern landlords enjoy. The first is the freedom to set a market rent. The second is the freedom to seek possession of the property during a periodic tenancy.
Legislation in the 1970s gave more protection to tenants
The concept of the sitting tenant comes from a time when regulation of the private rental sector was far tighter than it is today. In the mid-to-late 70s, the government passed legislation that capped private rents and protected tenants from eviction. Furthermore, it allowed for ‘succession’ of protected tenancies after the death of a sitting tenant.
The assured shorthold tenancy agreement changed this
The legislation deterred further investment in private rental property and led to a massive shortage. The Housing Act 1988 attempted to rebalance the scales with the introduction of the assured shorthold tenancy that we know today.
The AST came into effect on 15th January 1989. Most tenancies created since then have come under the new rules.
Regulated tenancies: a quick overview
A tenancy is likely to be regulated if it began before 15th January 1989 and pertains to a residential dwelling. There are some exceptions in the case of:
- properties that exceed a certain value;
- tenancies where very low or no rent is paid;
- some shared ownership leases;
- tenancies that include land other than the main property;
- student lets;
- holiday lets;
- agricultural land;
- property that forms part of a licensed premises, such as a flat above a pub;
- live-in landlords; and
- tenancies where the landlord is a local authority, housing association, housing co-operative or government department
Protected tenancies have two stages:
- The contractual stage. Protected tenancies that are still in their fixed term (which nowadays is very unlikely), or tenancies that have always been periodic and have not been ended via a ‘notice to quit’, are in the contractual stage.
- The statutory stage. Most protected tenancies today are in the statutory stage. You may only evict a tenant during the statutory stage and even then, only with a court order.
Sitting tenants also share rights with AST tenants
A sitting tenant shares many rights with a non-regulated tenant, such as:
- the right to quiet enjoyment, i.e. to live in the property undisturbed
- the right to live in a property in a good state of repair
Furthermore, sitting tenants have the right to pay a ‘fair rent’. A fair rent is set by a rent officer or a rent disputes tribunal. Since 1999, increases have been limited by inflation.
Either you or your tenant can register a fair rent. Once this is done, you may only apply to increase the rent every two years, and your tenant may challenge the increase.
Sitting tenants have protection from eviction
Sitting tenants are also protected from eviction, illegal or otherwise. You may only evict a sitting tenant under certain cases, which are listed in schedule 15 of the Rent Act 1977.
There are discretionary and mandatory cases for possession. Cases 1 to 10 are discretionary, meaning that a court does not have to order possession. Cases 11 to 20 are mandatory, meaning that if they can be proved, a court must order possession.
- The tenant has not paid rent, or has broken another condition of the tenancy.
- The tenant or anyone else occupying the property is guilty of antisocial behaviour or using the property for “illegal or immoral purposes”.
- The condition of the property has deteriorated due to neglect by the tenant or any other occupant.
- The condition of any furniture included with the tenancy has deteriorated due to ill-treatment by the tenant or any other occupant.
- The tenant has given notice to quit and the landlord has subsequently sought to sell or re-let the property.
- The tenant has assigned the tenancy or sublet the property without consent.
- The property is licensed for the sale of alcohol and the tenant has committed an offence as licence holder, improperly conducted the business or had their licence renewal refused. (This case was repealed by the Housing Act 1980.)
- The property is “reasonably required” for a full-time employee of the landlord.
- The property is “reasonably required” by the landlord or a close relative. (This does not apply for landlords who bought the property after 24th May 1974.)
- The tenant sublet part of the property at a higher rent than the maximum recoverable for that part.
The majority of these cases require the landlord to have served advance notice to his or her tenant.
- The landlord previously occupied the property as his or her main residence.
- The landlord intends to occupy the property as his or her main residence after retiring.
- The property was let for a fixed term of eight months or less and, during the previous 12 months, was let for a holiday.
- The property was let for a fixed term of one year or less and, during the previous 12 months, was let to a student by a specified educational institution.
- The property was intended for a religious minister.
- The property was formerly occupied by a farm worker.
- The property was formerly occupied by a farm manager during the amalgamation of agricultural land.
- The last occupier was a farm manager, or the widow or widower of a farm manager.
- The property was let under a protected shorthold tenancy under the Housing Act 1980, and the shorthold term has come to an end.
- The landlord was, at the time of letting, a member of the regular armed forces, and intended to resume occupation in the future.
Of interest is that the majority of cases that are mandatory grounds for possession for an assured shorthold tenancy are discretionary cases for a regulated tenancy. The mandatory cases cover very specific scenarios that usually won’t apply.
‘Buying out’ a sitting tenant: is it possible?
Because of the difficulties in evicting a sitting tenant, and the value lost as a result of having a sitting tenant in occupation, many landlords prefer to buy their sitting tenants out. This involves offering a sum of money to the tenant to convince them to surrender the tenancy.
A buy-out isn’t mandatory. A sitting tenant has no obligation to accept the payment, and many choose not to. Thus, there is no formula to working out an exact figure. It is typical to offer half the difference between:
- the value of the property subject to a regulated tenancy; and
- the value of the property with vacant possession
The price for a property subject to a regulated tenancy is typically around 75% of market value. The sum offered might therefore be around 12.5% of market value.
Succession of a regulated tenancy
The article linked below details how succession law applies to regulated tenancies.
Further information on regulated tenancies and sitting tenants
For more information, refer to the Regulated Tenancies handbook published by the Department for Communities and Local Government (DCLG).