Buying a Tenanted Property (3-Steps-Check for Buyers)

When you buy over a property with a tenant, the Option-to-Purchase (OTP) will state “sale with Tenancy”. This article will list 3 key things you should look out for when buying a tenanted property.

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     Table of Content

• Review Tenancy Agreement & Inventory List
• Check Security Deposit & Renewal Clause
• Visit the Tenant

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📌1. Review Tenancy Agreement & Inventory List

• When you buy over a property that says “Sale with Tenancy”, you will be obligated to continue the lease with the existing tenant until the contract ends.
• Most buyers will ask about the rental amount and lease expiry during the negotiation but forget to double check the actual documents before the Option to Purchase (OTP) is issued
• Sometimes, the owners or seller’s agent may have miscommunicated the rental amount and/or lease expiry dates without any malicious intent.
• Any changes in dates may adversely affect your move-in date if you are buying to stay.
• During the tenancy period, some furniture or appliances may have been removed or replaced without updating the inventory list.
• For buyers who are buying as an investment, you may want to check the inventory list to see which items belong to the tenant to avoid misunderstandings.

📌2. Check Security Deposit & Renewal Clause

• The standard security deposit required is 1 month’s rent for 1-year lease and 2 months’ rent for 2-year lease.
• If the current tenants have renewed the lease for several rounds, some landlords may waive the deposit or agreed to a lesser deposit amount than normal
• However, this is not a big worry because your appointed law firm will be responsible to help you sort out how much security deposit should be transferred to you during completion procedures.
• What is more important is to look at the lease renewal clause.
• Some tenancy agreements will state “renewal amount subject to negotiation” while others may indicate a fixed amount.
• A fixed amount agreed upon between current tenant and seller 2 years back may not benefit the new owner in a market where rental rates are rising. 

📌3. Visit the Tenant

• It is always good for you or your property agent to visit the tenants to update them about the impending deal.
• You should visit them after OTP is issued and before completion.
• Sometimes, the seller may have promised them something verbally that is not written into the contract.
• For example, rent deduction in the next renewal, installing new air-condition units, etc.
• Whatever verbal agreement should be referred back to the seller who is morally obligated to settle them before the sale is completed.
• This visit will give them reassurance and ensure smoother landlord-tenant relations after completion.

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