Selling a Property with a sitting tenant

[valery]

Sinn Fein‘s stated policy is that when in government that they will make it illegal to give a tenant notice in order to sell your property. Thus the only buyer will be another landlord willing to take on a sitting tenant at presumably a large discount on the value of the property.

Two questions, for any legal or property experts

Can the government of the day interfere with your property rights to such an extent?

What is the likely discount incurred on the sale of a property with a sitting tenant?

Unfortunately, for various reasons, I am not in a position to sell my rental property at the moment.

 

[Leo]

What is the likely discount incurred on the sale of a property with a sitting tenant?

Much will likely depend on the current rent and how it compares to what could be charged if it were a first time letting.

 

[NoRegretsCoyote]

Can the government of the day interfere with your property rights to such an extent?

The Oireachtas could certainly pass legislation to this end. Am not a constitutional lawyer but there are question marks as to whether the interference with private property rights can be justified constitutionally on common good principles, see Article 43.

AFAIK commercial properties are bought and sold with sitting tenants all the time. That said, commercial landlords can effectively ensure that tenancies are not indefinite in duration, unlike residential landlords. It's also easier to evict a commercial tenant for unpaid rent.

When it comes to selling a property with tenants in place I always think of Akerlof's Market for Lemons. A landlord is much more likely to seek to sell with a bad tenant than a good tenant, and a potential buyer cannot tell if a tenant is good or bad. So all buyers will demand a hefty discount to market value, so even a landlord selling with a perfect tenant will face a big discount.

 

[T McGibney]

What is the likely discount incurred on the sale of a property with a sitting tenant?

Likely to be significant. You'd be effectively barred from selling to owner-occupies, who seem to comprise most buyers these days.

 

[The Horseman]

Sinn Fein‘s stated policy is that when in government that they will make it illegal to give a tenant notice in order to sell your property. Thus the only buyer will be another landlord willing to take on a sitting tenant at presumably a large discount on the value of the property.

Two questions, for any legal or property experts

Can the government of the day interfere with your property rights to such an extent?

What is the likely discount incurred on the sale of a property with a sitting tenant?

Unfortunately, for various reasons, I am not in a position to sell my rental property at the moment.

If you can hold off selling for a couple of years and supply has increased I don't think this will be a big factor.

Currently the lack of alternative accommodation is the reason for this knee jerk reaction. I personally think this is electioneering and once in power may decide against it.

I hope it is just electioneering. If you can wait until the tenant leaves of their own accord then you could sell no problem.

 

[Sarenco]

Expressing an intention to sell is not a ground for terminating a tenancy in the UK and it doesn’t seem to be a particularly big deal there.

 

[NoRegretsCoyote]

Expressing an intention to sell is not a ground for terminating a tenancy in the UK and it doesn’t seem to be a particularly big deal there.

But the whole framework is completely different. The landlord can make a no-grounds notice of termination when the fixed-term lease expires.

Tenants don't automatically accrue tenancies of indefinite duration like in Ireland.

 

[valery]

Expressing an intention to sell is not a ground for terminating a tenancy in the UK and it doesn’t seem to be a particularly big deal there.

I have just looked up UK regulations and if the landlord wants to sell with vacant possession he can issue a section 21 notice. This gives tenants not on a fixed term lease 2 months to quit.

 

[valery]

Horseman, you suggest waiting to sell until the tenant leaves of their own accord. My tenant is currently paying approx 20% less than market rates. He is unlikely to leave any time soon and in fact could well make an offer for the property if Sinn Féin’s proposal becomes law. He then acquires it at a discount and is free to sell it to whoever he likes.
The location is good and would appeal to an owner occupier.

 

[mustang01]

It’s crazy stuff and only encouraging even more delinquency. No wonder landlords are selling in droves.

 

[DannyBoyD]

Best answer I can come up with is to rent for 6 months at a time to different tenants; so they dont have indefinite tenure.

 

[The Horseman]

Horseman, you suggest waiting to sell until the tenant leaves of their own accord. My tenant is currently paying approx 20% less than market rates. He is unlikely to leave any time soon and in fact could well make an offer for the property if Sinn Féin’s proposal becomes law. He then acquires it at a discount and is free to sell it to whoever he likes.
The location is good and would appeal to an owner occupier.

For the record I am a landlord with below market rent because I had good tenants.

I sincerely hope Sinn Fein don't get in on their own (which I doubt). They will need one of the incumbents to form a govt and neither would agree to this.

I think if this were to be introduced a class action against the constitutionality of this would be challenged. With the implications of this on so many private landlords I would expect significant support from private landlords to fund any legal cost for this.

 

[mustang01]

For the record I am a landlord with below market rent because I had good tenants.

I sincerely hope Sinn Fein don't get in on their own (which I doubt). They will need one of the incumbents to form a govt and neither would agree to this.

I think if this were to be introduced a class action against the constitutionality of this would be challenged. With the implications of this on so many private landlords I would expect significant support from private landlords to fund any legal cost for this.

Agree but the prob in this country is that the landlord is historically painted as a big grabby meanie, and the man on the street is only too happy to see SF stick it to the ‘fat cats’.

 

[Mocame]

Keep up folks, the entire rationale for the proposed constructional referendum on the 'right to housing' is that measures like this will be constitutional. Be in no doubt Sinn Féin will go ahead with these proposals - their voters expect it and their vote will collapse if they don't. The number of SF voting landlords must surely be between slim and nil?

If landlords right to evict prior to sale is removed surely the selling price of tenanted houses will be some multiple of the rent?

 

[MrViking]

As soon as even a draft bill which resembles anything close to this is drafted by a ruling government, I will be giving notice to quit across all of my rentals. And same if any ruling government proceeds with holding a referendum on the constitutional right to housing. Either of these events will be my trigger to exit.

 

[The Horseman]

Keep up folks, the entire rationale for the proposed constructional referendum on the 'right to housing' is that measures like this will be constitutional. Be in no doubt Sinn Féin will go ahead with these proposals - their voters expect it and their vote will collapse if they don't. The number of SF voting landlords must surely be between slim and nil?

If landlords right to evict prior to sale is removed surely the selling price of tenanted houses will be some multiple of the rent?

There are more homeowners than renters and the bulk of landlords are private individuals. Changing an individuals property rights will strike at the heart of every private individual who owns a property in Ireland whether its their own home or their investment property.

Changing the constitution won't happen over night and if it is proposed I expect there will be a huge number of eviction notices issued on grounds of selling.

What this will do is reduce rental supply even further. This could destroy Sinn Fein if they make an existing housing crisis even worse.

For what it's worth I suspect they will introduce legislation and force someone to take a constitutional challenge.

 

[Sarenco]

I have just looked up UK regulations and if the landlord wants to sell with vacant possession he can issue a section 21 notice. This gives tenants not on a fixed term lease 2 months to quit.

Except that a Section 21 notice in the UK does not bring a tenancy to an end…

If you think about it, it’s kind of weird that you can sign a lease and the landlord can turn around and decide he’s going to unilaterally terminate the lease because he wants to sell the property, even if you have upheld your end of the bargain.

That’s not the case in most developed jurisdictions.

 

[MrViking]

Except that a Section 21 notice in the UK does not bring a tenancy to an end…

If you think about it, it’s kind of weird that you can sign a lease and the landlord can turn around and decide he’s going to unilaterally terminate the lease because he wants to sell the property, even if you have upheld your end of the bargain.

That’s not the case in most developed jurisdictions.

I’m not sure this is correct. My understanding is that you can terminate a Part IV tenancy, but if you have a fixed term lease, then you cannot give notice to quit until that fixed term has ended. Hence why most landlords simply avoid entering into fixed lease terms these days.

 

[NoRegretsCoyote]

If you think about it, it’s kind of weird that you can sign a lease and the landlord can turn around and decide he’s going to unilaterally terminate the lease because he wants to sell the property, even if you have upheld your end of the bargain.

But it's totally different in Ireland. A tenant automatically accrues an indefinite tenancy after six months of occupancy no matter what is in the rental contract.

In the UK once the fixed-term lease is up the landlord can do what they want. From here:

At the end of any fixed term the tenancy becomes a periodic month-by-month tenancy. As always, to evict the tenant, two months' landlord's notice is necessary, and no reasons are necessary.

Grounds to terminate on the basis of need to sell are superfluous in the UK, as once the agreed lease period is up the landlord needs no reasons. Furthermore, it's very hard for a tenant to overhold:

Where the tenant refuses to surrender, the landlord cannot just walk in, he must apply to the court for a possession order, but this is easy and relatively quick. The court has no discretion to refuse.

Back to Ireland, the removal of the right of a landlord to seek a termination on the grounds of need to sell would move Ireland closer to giving tenants essentially unbreakable tenancies. And in many cases where landlords are stuck with rents forever at 60% of market rate. A typical landlord wanting to sell would be faced with: (1) a much smaller pool of buyers; (2) buyers who will discount the price in line with the below-market rent; (3) suspicion on the part of any buyer that there is a bad tenant in occupation. This is easily a discount of 20% against market value, and not hard to imagine it being 40% in some circumstances.

I am not a campaigner for landlords' rights. I think the rules with regard to termination of tenancy and rent review were far too landlord-friendly c. 2016 and many of the changes since then bring about an element of balance for the tenant. But the pendulum has swung too far and seems likely to swing further. Incumbent tenants will do well out of it, but at the expense of new ones who will have no homes to look for.

 

[Leo]

Keep up folks, the entire rationale for the proposed constructional referendum on the 'right to housing' is that measures like this will be constitutional.

Only if they also water down private property rights, and I've seen no suggestion of that. So far this is just a populist response so they can look like they are doing something to address a very complex issue that no government will resolve quickly.

A constitutional right to housing does not inherently pose any obligation on private citizens or extinguish any other rights they have enshrined in the constitution.