The recent case of Scott v Southern Pacific Mortgages Ltd highlights the risks associated with buying a property which has tenants or occupiers other than the legal owner living in it.
All solicitors have the risk of these occupiers drummed into them by their tutors and supervisors. The big ‘if’ is: “What if that occupier refuses to leave on completion?”
The Law Society has created more transparency on this point in the TA6 Property Information Form. This form is standard in all property sale transactions. When you are buying a property, your solicitor will send you this form, once completed, signed and dated by the seller.
One section of the form requires the seller to complete the names of all occupiers at the property, who are not legal owners. Underneath, the owner of the property must select a box to confirm that those occupiers will all sign the contract and confirm they will move out on completion.
If you are buying a property subject to an existing tenancy, the answer will be “no”. Otherwise, the answer must always be “yes”.
Once the occupiers have signed the contract and contracts have exchanged, they have made an enforceable agreement with you as buyer to vacate. You can then take action under that contract, if they refuse to do so.
If they do not sign, an occupier may claim rights to remain at the property.
A couple may be co-habiting now, but only one of them may have originally purchased the property and be named as legal owner. The occupying partner may have paid money to the other to help, for example, with the mortgage payments. They may have paid larger amounts towards new windows, a loft conversion or an extension. Those types of improvements will have increased the value of the property. They may then expect money back, particularly if they are going their separate ways and that is the reason for the sale.
Even a friend lodging in a spare room may have paid towards maintenance and upkeep of the property.
We will always advise you to be alert when inspecting a property to evidence that anybody else lives at the property. If so, let your solicitor know. We must be vigilant and ensure the seller has named all those over 17 living with them in the Property Information Form, and made the correct declaration about them signing the contract and moving out.
For more formal arrangements, if you are buying a property that is tenanted, the timing of exchange of contracts and completion has to be given careful consideration.
If you want to occupy the property on completion, the correct type of notice under the terms of their tenancy agreement must be given. The correct notice period must also be given. We will exchange contracts once we have evidence that notice to vacate has been given. We ensure that your completion date falls at the end of that notice period. This can be one or two months under normal assured shorthold tenancy agreements.
We will also check the type of tenancy in detail, to make sure the tenant is not a sitting or protected tenant.
If the seller agrees to give notice to the tenants at the start of the transaction, on trust you will proceed, you must inspect the property before we exchange contracts. You must check there are no signs the tenants are still living there. This is particularly the case if the tenants have said they will move out before exchange of contracts and, on that basis, will not usually sign the contract to confirm they will vacate on completion.
If you are buying subject to the tenancy, we will also deal with letters of authority for rent and the transfer of the deposit under the tenancy deposit team.
Whenever you have concerns about buying a property with occupiers or tenants, please speak to the Stone King Property Team. We will ensure all necessary steps are taken for you to move into your new home on the agreed date, without finding unwelcome housemates still living there.
Our private client team will also be pleased to advise you on tax, co-ownership and succession planning issues.