Does Multi occupancy/HMO affect property value?

by Readers Question

15:11 PM, 17th September 2019
About a month ago

Does Multi occupancy/HMO affect property value?

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Does Multi occupancy/HMO affect property value?

There are two flats in a converted terraced property of which I own the ground floor flat. The other first floor flat (FFF) is owned by another leaseholder. I bought the freehold over 10 years ago with the previous leaseholder who then sold up and it was transferred to the current leaseholder and hence we both now own the freehold jointly.

We both signed a deed of variation in November 2015 whereby we agreed to let each other have permission for a rear extension and internal alterations on my flat for more than one occupancy and him a loft conversion.

Also changed the wording on the lease so to be able to rent for more than one occupant (as lease stated one occupant) and also I allowed owner of FF flat to have consent for a loft conversion and wooden flooring in agreement. This deed of variation was not registered at the Land Registry at the time.

Recently, the FFF leaseholder wants to sell his flat and has asked me to sign a deed of variation that is different from the original deed of variation. It states “The lease does not include the loft space of the building and the tenant has requested the landlord to vary the terms of the lease and to replace and substitute the plan to the existing lease with the plans annexed to the deed which the parties have agreed to so in the terms and in the manner hereinafter appearing” The hereinafter is the tenant wishing to carry out works to convert the loft space of the building into additional living accommodation and the annexed plans include the loft space delineated in red to indicate first floor leaseholder will own loft space.

He is now threatening me with litigation if I do not sign this new deed of variation, even though I have mentioned that the current deed of variation has changed substantially as it is now asking me to sign over roof space to the FFF leaseholder which he never owned but has been jointly owned by the freeholders. I asked that we should negotiate and for him to purchase my share of the roof space so that he owns it outright. Instead of agreeing to this, he is now threatening to take legal action as he claims that the value of his property has fallen due to my using my flat as a multi-occupancy (I have three tenants).

From my landlord experience, I don’t think that the property value is significantly affected, as the location is highly desirable and sought after and I think this determines the value rather than being a rental with more than one occupancy or even calling it an HMO which it will now have to be as there is selective licensing for landlords who house 3 or more tenants.

My two questions are:

1) if I am being unreasonable with asking for a premium for the loft space he doesn’t own?

2) if a property is indeed used as a multiple occupancy or an HMO does it substantially reduce the value of the property or its saleability in an already flat dominated highly sought residential area?

Thank you in advance.

Sofia



Comments

Puzzler

10:05 AM, 18th September 2019
About a month ago

"allowed owner of FF flat to have consent for a loft conversion and wooden flooring"

"convert the loft space of the building into additional living accommodation and the annexed plans include the loft space delineated in red to indicate first floor leaseholder will own loft space"

Sorry to be dim, but how do these scenarios differ? You say you agreed to the first but how could he have a loft conversion if it was in joint ownership? Did you expect your flat to use it as well? Was it not for living space, if not, what was it for?

Is there communal access or just through the upper flat?

I suspect the purchaser has had a lawyer check your agreement and pointed out an obvious anomaly. Which should have been pointed out by the solicitor who drew up the first deed of variation.

Graham Bowcock

10:41 AM, 18th September 2019
About a month ago

Hi Sofia
Like many questions on this forum there is presumably some background, and probably a massive pile of paperwork. It is not clear if the other leaseholder is now trying to simply rectify a previous error or is asking for something new. If the former, then it is unlikely you will be due a premium; if the latter then you could make some charge (at least for legals) to get the paperwork dealt with.

As for the issue of value, and perhaps compensation, this will turn on what has been agreed before and whether or not you are in breach.

There is a danger is asking simple questions in isolation; you really need your solicitor to read the lease and variations and then confirm your current entitlements and obligations.

Puzzler

11:25 AM, 18th September 2019
About a month ago

Reply to the comment left by Graham Bowcock at 18/09/2019 - 10:41
I forgot to add, if there is a question of value then you will need a specialist surveyor to assess the loft space to have any basis for negotiation, they might also advise on whether you have any material claim on it

As to the HMO issue, try getting an opinion from a local estate agent, I would have thought three sharers would not make much difference

Sofia

11:38 AM, 20th September 2019
About a month ago

Reply to the comment left by Puzzler at 18/09/2019 - 10:05
Thanks for your reply.
The scenarios differ in the second statement it talks about owning loft space which was not owner of FFF to begin with (I was not made aware of this). I did not expect to use it, as my flat does not have access to it from indoors but externally I own the garden and in theory could have access to the roof space externally.
I agreed to the loft conversion, thinking that it belonged to the FFF owner. However, he was never transparent to me to inform me that it was jointly owned by the freeholders. It is only on sight of the amended deed of variation (last few weeks) was it stated that the owner of FFF does not own loft space and that I should sign it over.
Frankly I am fed up as I thought it was all agreed and I am annoyed as to why the owner never told me about not owning outright the loft space to begin with!!
BTW the first deed if variation was drawn up by the owner's father who was/is a solicitor.

Puzzler

8:37 AM, 22nd September 2019
About 4 weeks ago

So, 1st agreement - based on incorrect/misleading information and conflict of interest is probably not valid. Were you advised to get independent legal advice by the owner's father? If not, he is in breach of his duty of care. Hence the new owner wants that rectified which is clearly a good idea.

Has your extension been built? If so, it's not relevant to the new purchaser. Not sure what you mean by access to outside roof space, that would not be included anyway. Agreement for HMO was prior to purchase so also not relevant. Don't know whether that would stand in isolation from the loft issue.

You are perfectly entitled not to sign over the loft space without agreeing terms. Let him take legal action, I don't think he has a case, he is trying to bully you and it's probably bluff. If you do want to sell him your share of the loft space, you'll need a surveyor to value it.

Let us know how you get on.

Puzzler

8:44 AM, 22nd September 2019
About 4 weeks ago

P.S. and an independent solicitor.

You could ask the surveyor to copy his report to the FFF owner directly (once you know what it says of course), so he knows you mean business. It will cost you a fee but should nip this in the bud.

To get a rough idea, ask a local estate agent what the difference in value of his flat will be. He's trying to get something for nothing.

Puzzler

8:47 AM, 22nd September 2019
About 4 weeks ago

[No longer get a period to edit comments]

P.P.S. It may be he was misled by the previous owner into thinking the loft was his. That is his solicitor's fault, not yours but if you're sympathetic maybe he will make you an offer

Puzzler

9:31 AM, 5th October 2019
About 2 weeks ago

Another thought, was the first deed lodged with the Land Registry?


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