Buying tenanted properties – don’t get caught out

Tenants in properties that are being sold have the potential to become a headache for buyers wanting to make the property their home, but clear agreements and terms can put that to rest.

January 26, 2017

There are potential benefits of buying a tenanted property, particularly if the property purchase is purely for investment purposes. Finding a reliable tenant can be a challenge so being able to assess the current tenant on payment history and house maintenance can be a significant bonus. However, keeping a tenant on may not suit every buyer.

Weighing up the property rights

While the phrase “possession is nine tenths of the law” is somewhat trite, there are reasons why it has become so commonplace and it holds some validity in situations involving tenanted properties being sold.

Once registration takes place in the Deeds Office, the buyer becomes the new owner of the property and has the right to use and enjoy the property as desired within the confines of the law. However, there are restrictions on this right if there is a tenant currently occupying the property as the rights of the tenant take precedence within the property sale and may prevent the new owner from taking occupation.

While the owner of the property has changed, the tenant’s rights have not, and the tenant’s lease agreement remains unchanged. As such, the responsibilities the previous owner had as the landlord are simply transferred to the new owner, and the same lease agreement remains in place with the buyer taking over the position of lessor for its remaining duration.

Keeping all parties happy

The key to ensuring that the sale of a tenanted property proceeds smoothly and that all parties are satisfied with the outcome requires both honesty as well as clear written contracts.

Firstly, it is vital that the buyer is made aware of the fact that there is a tenant as this may affect a decision to purchase. Should the buyer wish to move into the property upon registration and terminate the lease agreement with the tenant, this can be requested and the seller would be responsible for managing this negotiation and process with the tenant prior to the sale of the property. The buyer should be careful not to sign a sale agreement unless a satisfactory agreement with the tenant has been reached, put in writing and signed by all relevant parties to ensure all parties understand their rights and responsibilities.

Often a lease agreement will include a clause dealing with this scenario, but the OTP should also have explicit terms to remove any uncertainty, and ensure a smooth and successful property sale.

Written by Wessel de Kock

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