Could I get stitched up buying an informal HMO?

by Readers Question

10:18 AM, 29th April 2015
About 4 years ago

Could I get stitched up buying an informal HMO?

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Could I get stitched up buying an informal HMO?

I have had an offer accepted on a 3 bed house which I am buying, but what worries me is that the house is currently tenanted with 5 rooms being let to individuals, it is an informal HMO being done on the sly as they should really have a licence.

The agent tells me the property will be empty on exchange, but how can I safe guard myself that this will actually happen? What if there is a tenant in there that is on a tenancy that is a controlled tenancy or something other than an AST that I am not aware of and after I exchange I discover this?

I realise I could ask the agent to have the house emptied before exchange, but what if one of the tenants happens to relocate himself back in there, because the agent and the owner were up to some sort of scam against me so that they could sell the house. Obviously paying/bribing this one tenant to leave for a few days then to return so that I get stuffed.

Does anyone know what would be the best way to play this so that I am not exposed and can get the house completely vacant?

Cheers

Joelstitch



Comments

Neil Patterson

10:24 AM, 29th April 2015
About 4 years ago

Dear Joel,

You sound like you have very real concerns over the honesty of the vendor and agent in this purchase and your own protection.

I would make sure you take advice from your solicitor raising your concerns as their advice will be insured and you have protection under the law society.

If you haven't engaged a solicitor yet please see our recommended sponsor solicitors here >> http://buytoletconveyancing.co.uk/contact-us/

james pearce

10:58 AM, 29th April 2015
About 4 years ago

If it doesn't feel right then it probably isn't..................

Howard Reuben CeMap CeRER

11:01 AM, 29th April 2015
About 4 years ago

Neil's right that your first step is to take legal advice. My thoughts are that even though buyers are liable for costs if pulling out between exchange and completion of contracts, that the ownership becomes valid only on completion anyway?

At that point, you definitely want vacant possession. In the meantime, if you have questions over the current tenancy arrangements, ask for copies of all AST's to be sent to your solicitor for review before you exchange.

On completion - change the locks!

HMO's are not only subject to local licensing but also any mortgage lender needs to know if it's being rented out as a standard AST or as an HMO too. Not all lenders accept HMO properties as security under their criteria, so any 'HMO' arrangement that is not agreed by the lender could be subject to a breach of mortgage terms, and the serious consequences that the lender would be allowed to impose.

And this is therefore a word of caution and advice to all pseudo-HMO landlords. If your property is mortgaged and rented out as an 'HMO' albeit the mortgage is a standard BTL product, please contact a mortgage Broker who can help put things 'legal' and proper again.

Howard
http://www.property118.com/member/?id=314

John Constant

11:05 AM, 29th April 2015
About 4 years ago

Hi Joel,
you don't say if you are buying to live in or buying to let. If you are buying to live in, and are buying with a mortgage, it's usually a condition of the mortgage that there is vacant possession on your purchase, so this is an avenue that your solicitor should check and ensure. If you are buying to let, then this is a bit of a grey area in that most lenders allow the transfer of tenants, usually with the provision of a new AST, which has to be administered by the solicitor in any case to protect their situation.

Also, ask yourself these two questions; what does the vendor have to gain by leaving a tenant in there? Not a lot, probably, then ask yourself this; what does he have to lose by leaving a tenant in there? An awful lot I reckon.

Joe Bloggs

12:33 PM, 29th April 2015
About 4 years ago

quite simple really. immediately before completion you need to inspect that the property is empty. if it is phone the solicitor to release funds, and change the locks whilst still there. you will need to have a clause in the contract that you will need access immediately prior to completion. if no VP then completion will be delayed.

Alison Walker

9:37 AM, 30th April 2015
About 4 years ago

You can also ensure that your solicitor inserts a clause into the contract that exchange is on the basis of vacant possession on completion.
As I'm not legally qualified you will need to ensure you take proper guidance but I know from personal experience whenever we've sold a property that is tenanted at the time an offer is accepted but due to be vacant by completion our solicitors have had a clause inserted into the contract to this effect. It may be wise to use a solicitor who has experience in this area.

Joel Hearne

11:32 AM, 30th April 2015
About 4 years ago

Reply to the comment left by "John Constant" at "29/04/2015 - 11:05":

Hi John,

I was thinking that if the vendor had a controlled tenant in one of the rooms and wanted to hide this from me he could hatch a deal with the controlled tenant such that if he could sell the property at a good price, he could pay the controlled tenant say 5K to dissapear for a few weeks on holiday and then return back and claim he knew nothing about any sale? THis way the vendor gets rid of the house to me, the controlled tenant gets 5K and still has his tenancy in place. I would then have legal hassles I guess. This obviously sounds quite messy but what would happen in a situation like that? This situation I desribe could happen if the vendor had bribed the controlled tenant in the one room couldnt it?

Joel Hearne

11:34 AM, 30th April 2015
About 4 years ago

Reply to the comment left by "John Constant" at "29/04/2015 - 11:05":

I am planning to buy this property to rent it out. There will be no mortgage in the property.

Joel Hearne

11:43 AM, 30th April 2015
About 4 years ago

Reply to the comment left by "Neil Patterson" at "29/04/2015 - 10:24":

To tell the truth I dont trust anyone in business and infact the friendlier they appear and open, the more cautious I tend to be. I dont have any reason to distrust the vendor but I was just wondering on how to cover myself.

My thinking was this - the agent has told me the house will be empty in 2 weeks, I go and check and it is empty. My solicitor then excahages and completes and then I get a knock on the door and a controlled tenant waves a bit of paper to say he has a long term tenancy. I guess I would have a legal case with the vendor at this point for selling me a non vacant on completion property but what if the vendor dont care about the law and runs off quickly abroad? I guess the solicitor will say to me that it was offered empty and you checked it was before completion and we asked the vendors solicitor to confirm it was going to be sold empty and thats all we could do.

What happens next, am I just stuck in legal chaos?

Joe Bloggs

23:44 PM, 30th April 2015
About 4 years ago

Reply to the comment left by "Joel Hearne" at "30/04/2015 - 11:43":

unlikely scenario i think, but you would have the defence of equitable estoppel.

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