What is a sitting contract holder and what are their rights?
You may have heard the term ‘sitting contract holder’ and wondered what it means. Here we explain what rights a sitting contract holder has, how a sitting contract holder may affect a property sale, and the choices landlords have if they are buying or selling a property with a sitting contract holder.
What does 'sitting contract holder' mean?
A sitting contract holder, or ‘contract holder in situ’, is a contract holder that is still living in the property when it is sold by a landlord. This could be because a tenancy agreement is still in place. Buyers can respect the contract holders’ right to remain living in the property. But a seller may choose to evict the contract holders, if they are able to do so, because the selling price will be negatively affected with a contract holder in situ.
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What rights do sitting contract holders have?
Sitting contract holders do have rights. If they have an ongoing occupational contract with the landlord who is selling the property, they have the right to remain residing there even after the sale. In the unlikely event that the contract began before January 1989, the sitting contract holders can exercise their rights to ‘security of tenure’ under the Rent Act 1977. In these cases, contract holders can remain in the property even after their agreement has expired or been terminated. A landlord has to prove they have ‘ground for possession’ for a pre-January 1989 contract in order to evict the contract holder.
However, there will be few contract holders today with such a long standing agreement. Most occupational contracts these days are assured shorthold tenancies, which gives a landlord the right to use an eviction notice, even for a sitting contract holder.
Buying a property with sitting contract holders
If you are buying a property which has sitting contract holders, the price you pay will be lower than similar properties which are sold with vacant possession. So if you want to save some money on the purchase this is a great way of doing so. However, you may struggle to get a mortgage offer on a property with sitting contract holders, so this might only be an option for cash buyers. You could just wait until the contract has come to an end or the contract holders have been evicted.
Are you buying with a view to letting out the property anyway? Many landlords prefer to have a sitting contract holder in the property they are buying, especially if they are long term contract holder. It saves the hassle and expense of finding a new contract holder, and continuing with a long term contract holder is a much less risky option. The new landlord usually takes over the ownership of the occupational contract after the property sale.
Selling a property with contract holders in situ
Landlords who are selling a property with sitting contract holders may find it difficult, but not impossible. If they allow their contract holders to remain in residence, the buyers of the property are likely to struggle to get a mortgage and proceed with the purchase. However, sales with sitting contract holders are on the increase. If the sale does go through, the selling price will be lower with sitting contract holders.
If the landlord chooses to evict the contract holder, the sale may be saved or run more smoothly, but rental income will be lost for the time it takes for the sale to complete.
Frequently asked questions
What qualifies you as a sitting contract holder?
Sitting contract holders are those that have a occupational contract or agreement with a landlord in place at the time a decision is made to sell the property they are living in. You have more rights as a sitting contract holder if your contract began before January 1989.
Can you evict a sitting contract holder?
If you prefer to have vacant possession of the property, to live in the property yourself, or want to find new contract holders, you have the right to evict the sitting contract holders with a Section 21 notice.
Do sitting contract holders have the right to buy?
Sitting contract holders or contract holders in situ do not have an automatic right to buy the property they are living in, unless it is a property owned by a local authority.
Can you increase the rent of a sitting contract holder?
Normal sitting contract holders have the same rights to fair rent as any other contract holders. Landlords can only increase the rent when an existing occupational contract expires, unless the occupational contract has a rent review clause.
If the sitting contract holder has security of tenure (explained above), a landlord can only request to put the rent up through a review process. This can only be undertaken every two years, and has to be carried out by a Rent Officer.
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