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Mortgages

What should I bear in mind if I want to buy a property that comes with tenants?

Buying a house or apartment with tenants

Although it may seem surprising, buying a house with tenants is becoming increasingly popular. The situation often arises where we buy a property and the owners wish to keep living there until they find a new home; or someone may sell their home but continue to live in it; or perhaps what we want is to buy a property as an investment (i.e. to rent), and we just so happen to find one that already comes with a tenant.

This kind of arrangement is often beneficial for the buyer, who will have to wait for the rental agreement to run its course, but in the meantime will receive the rent.

And if we buy a property to rent it out, we minimise the risk of default, as we will be earning rent from the outset and will therefore be paying off our initial investment, as we will not have to refurbish the property before renting it out.

Meanwhile, it makes no difference for the tenant moving from one landlord to another, as long as they retain their rights under the contract.

In any case, before wading in and buying a house, there are a number of important factors to bear in mind:

  • Any possible right of first refusal, which gives the tenant priority to buy the property if they so wish. In addition, the seller must notify the tenant that they plan to sell, and include in the contract a clause stating that they may be looking to sell the property down the line.
  • It's important to make sure that the property is free of liens, encumbrances and registered leases. This will need to be checked at the Land Registry (Registro de la Propiedad).
  • Know the tenant. We strongly advise asking the seller to provide a historical record of rent payments by the tenant; ask them about the deposit, any guarantee that may have been posted, or any delays or non-payments by the tenant. We should also ask for the rental contract to find out the terms and conditions of that particular lease.
  • The signing and term of the rental agreement. Rental agreements signed after March 2019 will be governed by the Mortgage Law (Ley Hipotecaria), which insists that the terms of the lease must be respected at all times, whether or not it is filed at the Land Registry (registration of leases at the Land Registry is entirely voluntary).
  • What this means in practice is that we will have to wait out the initial duration of the contract, unless we did not know the property was rented when we purchased it (see right of the public to be able to trust in the information on public record). In that case, we will have to indemnify the tenant.
  • If the lease was arranged between 6 June 2013 and 6 March 2019, we can avail ourselves of the 2013 rental reform, which shortens the duration of the contract and requires us to file the new rental at the Civil Registry. If everything goes smoothly, the tenant must vacate the property within three months once the contract has run its course, assuming they have no interest in acquiring the property, although if the owner is a company or a real estate agency, the tenant may request an extension of the lease.
  • If the tenant refuses to leave the property after the three-month period has expired, or if they fail to honour their essential obligations (payment of rent, taking proper care of the property), we can pursue legal action to evict them, although this should be used as a last resort. It is far preferable to reach an agreement between the parties and talk to an expert in rentals.