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.

What is a long term lease?

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.

Follow Snymans on Facebook for more legal advice, information and news about property.

Recommended for you

Amendments to the Financial Intelligence Centre Act (FICA)
Legislative Guidelines

The FIC Act: How it’s tackling money laundering in South Africa[post_view before=""]

The Financial Intelligence Centre (FIC) defines money laundering as “the process used by criminals to hide, conceal or disguise the nature, source, location, disposition or movement of the proceeds of unlawful activities or any interest which anyone has in such proceeds.”

Read More
Minors and immovable property
Legislative Guidelines

Court ruling: The applicability of the Consumer Protection Act in rental agreements[post_view before=""]

In the recently decided case of Magic Vending (Pty) Ltd vs N Tambwe and two other occupants of a rental house in Wynberg, the Western Cape Division of the High Court was asked to rule on a) whether the Consumer Protection Act applied to the case in question and b) whether the enforcement of the forfeiture clause contained in clause 14 of the lease agreement was contrary to public policy.

Read More
Minors and immovable property
Legislative Guidelines

Non-resident sellers: Make sure you comply with SARS requirements[post_view before=""]

Non-resident property sellers should be aware of the requirements of section 35A of the Income Tax Act 58 of 1962. The section stipulates that an amount equal to 5% (individuals), 10% (companies) or 15% (trusts) of the proceeds of a sale of immovable property must be withheld and paid over to SARS within 14 days after “the date on which the amount was so withheld” – this is typically the date of registration of transfer. An exception is if the parties agree that the purchase price be paid before registration, in which case the 14 days will be calculated from such payment date.

Read More
Minors and immovable property
Legislative Guidelines

Comment on the Expropriation Bill, 2020[post_view before=""]

This article seeks to highlight some aspects of expropriation of land by looking at the current section 25 of the Constitution and the Expropriation Bill 2020, issued by the Department of Public Works and Infrastructure.

Read More
Property Blog Articles | Advice | Contractual Matters | Market News
Legislative Guidelines

Land claims and their impact on the registration of mortgage bonds[post_view before=""]

When it comes to commercial lending transactions, the lender – usually a commercial or corporate division of a bank – may require confirmation that there are no land claims in process in respect of the property or properties that will form part of the security to be registered in the lending structure.

Read More

Need more Snymans content?

Sign up for our monthly newsletter.

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.

What is a long term lease?

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.

Follow Snymans on Facebook for more legal advice, information and news about property.