Buying a property with an existing tenant

When purchasing a property with a tenant already in place, certain aspects should always be considered before the offer to purchase is signed.

September 18, 2019

What are the tenant’s rights based on the existing lease agreement?

The old South African principle of “Huur Gaat Voor Koop” is applicable to all properties being sold under normal circumstances with a tenant already in place. This principle stipulates that if a lease is signed before the property was legally sold, the lease agreement will survive the sale. What this means is that when the property is registered in the Deeds Office under the new owner’s name, he or she then becomes the landlord until the lease agreement term expires.

What are the advantages of buying a tenanted property?

There are some significant benefits to buying a property with an existing tenant in place. Most notably, finding a tenant can be an arduous task, but this way, there is no time wasted. The risk of the rental property standing vacant is eliminated and rental income is secured from the outset.

In addition, it simplifies the process of vetting a tenant. This is an important step for any landlord to ensure that a well-informed decision is made and avoid the risks of a tenant damaging a property or neglecting to pay their rent. With the tenant and lease agreement already in place at the time of the property sale, the prospective buyer can begin the vetting process before entering into the sale agreement and can also obtain a direct reference from the existing landlord.

Before buying a tenanted property, you should:

  • Look over the lease agreement thoroughly and discuss the terms of the lease with the seller (existing landlord) before making an Offer to Purchase.
  • Make arrangements regarding the deposit and how this will be released from the seller to the buyer upon transfer of the property
  • Ensure you are aware of the rental amount and provide the necessary details so that the tenant is able to pay this promptly
  • Ask the seller to introduce you to the tenant to ensure a smooth transition between landlords. This is best practice and can help get the new tenant/landlord relationship off to a good start.

Discussing these points and clarifying any issues at the start will ensure that all parties are on the same page, that both the tenant and the new landlord are aware of their rights and obligations under the lease agreement, and avoid negative experiences such as a tenant refusing to leave when required.

The buyer’s rights when purchasing a property with a tenant

It is possible for certain conditions to be agreed upon should the prospective buyer want to move into the property rather than continue to lease the property to an existing tenant. If this is the case, vacant occupation can be made a term within the Offer to Purchase.

This means that the seller of the property has to ensure that the lease is terminated before registration of the property in the new owner’s name can take place. However, this must be done lawfully and in accordance with the terms of the existing lease agreement, e.g. the landlord must provide the requisite notice period to the tenant in order to cancel the lease agreement.

If you are considering purchasing a property with a tenant in place, familiarise yourself with the obligations associated with being a landlord. It can also be useful to consult an attorney before signing an Offer to Purchase as they will be able to assist you in examining the existing lease agreement and Offer to Purchase in order to eliminate any unwelcome surprises.

Written by Wessel de Kock

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