Due Diligence Before Buying a Tenanted Portfolio

Buying a tenanted property or a portfolio is not the same as buying a vacant house. Alongside the bricks and mortar, you inherit tenancies, obligations and — crucially — whatever compliance and licensing position the previous owner leaves behind. That inherited position can be sound. It can also contain liabilities that are expensive to discover after completion.

Good acquisition diligence is about understanding what you are actually taking on, so that the price and the plan reflect reality rather than assumption.

Licensing risk transfers with the property

Selective and HMO licensing obligations do not disappear on a change of ownership. If properties sit within a designated area, a new owner needs licences in place and conditions met. A portfolio being sold with lapsed, missing or non-compliant licences is a portfolio being sold with a live liability attached, and that should be understood before, not after, a purchase.

• Which properties fall within current licensing designations?
• Are valid licences held, and will they transfer or need reapplication?
• Are licence conditions actually being met and evidenced?
• Is there any history of enforcement, penalties or complaints?

Compliance and condition

Beyond licensing, the fundamentals must be checked: current gas and electrical certification, EPCs, alarms and the physical condition of each property. A portfolio marketed on its yield can conceal a backlog of deferred maintenance and expired certification that will demand capital soon after completion.

A portfolio sold with lapsed licences or expired certificates is a portfolio sold with a liability attached. Diligence is what surfaces it before completion.

Tenancies and documentation

The quality of the tenancies matters as much as the buildings. Are tenancy agreements in place and sound? Were deposits protected correctly? Were the prescribed documents served, and Right to Rent checks completed? Defects here can constrain your ability to manage or regain possession, and they travel with the property to its new owner.

Pricing the reality

The purpose of diligence is not to kill deals but to price and plan them accurately. A clear picture of licensing, compliance, condition and tenancy risk lets a buyer negotiate from evidence, budget for remediation and complete with confidence — or walk away knowingly rather than discover the problem later.

This information is general and does not constitute legal, financial, tax or investment advice. Obtain appropriate professional advice before any acquisition.