What to know about buying a tenant-occupied property

8 May 2017

You have been looking for the ideal property to purchase for months and finally find it, but there is a catch - there is a tenant who is currently renting the property. What now?

Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, says that because the lease agreement is legally binding and was in place before, it stands - regardless if the owner of the home decides to sell.

“The lease agreement goes with the home. Essentially, this means that purchasing the home automatically makes the new owner a landlord, whether they planned to be or not,” says Goslett.

“If the property is being bought as an investment or as part of a rental portfolio, the fact that the home is occupied might be seen as a drawcard.”

However, if the property has been purchased as a primary residence and the new owner intends to live there, he says it could be a problem.

“The new owner will only be able to take occupancy of the home once the lease agreement has expired and the tenant vacates the property,” says Goslett.

“For this reason, it is best for the buyer to go over the details of the lease agreement and see how long the tenant can stay in occupation before they decide whether it is worth their while to purchase the home.”

He says there is also the matter of brushing up on the legal rights and responsibilities of a landlord.

“There are respective obligations imposed on both the lessor and lessee in a lease agreement, so it is important for the purchaser to understand the implications of buying the home from the outset,” says Goslett.

For example, if there was a security deposit paid at the initiation of the tenancy, he says this will need to be refunded back to the tenant at the end of the lease.

“The buyer must ensure that they get this money from the seller. Otherwise, they will find themselves out of pocket,” says Goslett.

“Another aspect to check is whether the landlord is required to pay back any money that the tenant has paid for improvements to the property during the tenancy - this is money that should also be recovered from the seller during the sales process.”

If all goes according to plan, Goslett says the new owner will only have to wait until the lease expires to move into their new home.

However, this is provided that the tenant plays along and vacates the property when they are supposed to do so.

“There are cases where the tenant has refused to move out, even once the lease agreement has run its course. Apart from having to deal with the delay, the new owner may also have to take legal action to have the tenant removed, which will cost money,” says Goslett.

“If possible, before purchasing the property, it is advisable to speak to the tenant and see what their intentions are, as this could save both time and money in the long run. A communicative, obliging tenant will make the process far smoother and pleasant.”