Lease Options, How Do They Work?

by Mark Alexander

16:29 PM, 12th December 2013
About 7 years ago

Lease Options, How Do They Work?

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Lease Options, How Do They Work?

Back in 2009 I wrote a paper warning of the risks of associated with Lease Options to both vendors and tenants who decide to rent with a view to purchasing a property via a landlord using a sandwich lease option method to control ownership of property. Lease Options

Originally published on 17th October 2011. Re-published on 12th December 2013 having received two emails about lease options from unconnected readers in one day.


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Comments

Jeremy Smith

19:32 PM, 12th December 2013
About 7 years ago

Thank you for posting your video.
I, too, have had mailshots about this, I had signed up to watch one, but missed it.
Yours covers it very succinctly, thank you.

The guy who invited me to watch his video is:
richard@o2propertyconsultants.co.uk
= richard shepherd
He's been sending out mass mailshots as far as I can tell, That's why you've have enquiries about this from more than one person.

I'm sure you knew that already though !

Mark Alexander

19:41 PM, 12th December 2013
About 7 years ago

Reply to the comment left by "Jeremy Smith" at "12/12/2013 - 19:32":

Thanks for that Jeremy, I had wondered!

I find that most of these “guru” schemes are a regurgitation of a scheme which can work well in the USA, Australia or NZ but rarely translate well to the UK market. Any decent UK solicitor will generally advise a vendor not to touch these schemes with a bargepole!

For this reason I don’t usually like discussing them on Property118 as I consider them to be the dirty end of the PRS, get rich quick schemes peddled by self proclaimed guru’s who teach people with very little financial standing to get involved in illegal or immoral activities. Sadly this affects peoples lives negatively, both the wannabes (who load up their credit cards to pay for courses and marketing), their tenants and vendors. It gives our industry a bad name.
.

Gareth Thomas

23:29 PM, 12th December 2013
About 7 years ago

A couple of questions.

1. Who paid/who charged £50k for such a course? That is outrageous!

2. Who are the "gurus" that have already "gone to the wall" whilst the interest rates (base rate that is) is just one half of one percent?

3. If you know of John Paul from Castledene Group you'll know that he is doing "sandwich lease options" properly and in full compliance of applicable laws and best practice, so it can work.

4. Do you accept that standard lease options can work?

Mark Alexander

23:40 PM, 12th December 2013
About 7 years ago

Reply to the comment left by "Gareth Thomas" at "12/12/2013 - 23:29":

Hi Gareth

1) I do not name and shame private businesses unless the Courts or the mainstream press have already done so, plenty paid though. Richard Bowser of Property Invesor News and Paul Shamplina of Landlord action both have long lists of victims

2) perhaps the most prolific example of a person to be named and shamed by the media, and who declared bankruptcy, was Phil Martin

3) I am shocked but at least he has a credible business behind him unlike most who get into this market

4) In theory yes I accept they can work but I believe they should be regulated when used with residential property, much like SARB (Sale and Rent Back)
.

Mark Alexander

8:42 AM, 13th December 2013
About 7 years ago

Reply to the comment left by "Gareth Thomas" at "12/12/2013 - 23:29":

Hi Gareth

Further thoughts regarding point 3 last night. Are you sure you are not confusing sandwich lease options with rent to buy?

The rent to buy scheme is very similar to the tail end of a sandwich lease option deal in that tenants pay extra towards a deposit with an option to buy. I know of a few well established independent letting agents who operate these schemes and one even got the thumbs up from Grant Shapps whilst he was housing minister. If these are operated by a letting agent which is a qualified member of a professional body such as ARLA or RICS then the risks are considerably reduced due to the agent having client money protection insurance and professional indemnity insurance. The risks are still prevalent though as I don't believe mortgage lenders will ever consent to the arrangements, thus putting the mortgage borrower into a technical default position. Independent legal advice is required to do this properly but I can't see why any respectable lawyer would advise his client that defaulting on a mortgage contract is a good idea. I do think it would be possible for Rent to Buy to be structured effectively but this would require the assistance of mortgage lenders. As a quid pro-quo for granting consent perhaps they could consider the scheme manager becoming a guarantor to the mortgage. This would obviously need to be underwritten, perhaps on BTL criteria, save for LTV's perhaps?

Lease options can work well on commercial property transactions and in some instances in consumer finance too, PCP on cars being a good example. The consumer based transactions such as PCP are, however, regulated contracts where financial services regulation, consumer credit legislation and unfair consumer contract terms 1999 legislation all apply.
.

Joe Bloggs

10:25 AM, 13th December 2013
About 7 years ago

i too think they are a scam. i went to an NLA local meeting a few years ago where a lady (titles herself 'the queen of options' i think) was selling this rubbish. we were amazed how many NLA members attending were sucked in and stayed after the meeting to talk to her with great enthusiasm. guess greed and stupidity. i am disillusioned with the NLA who i think are just interested in profit and not doing the right thing. surely they should not allow such people to peddle their scams at NLA events?

John Paul

18:41 PM, 15th December 2013
About 7 years ago

Glad I stumbled on this. Just to confirm we are NOT doing sandwich lease options, which probably need regulating depending on how they are structured. We have set up our own Rent to Own product, which we have paid an FCA Compliance company to have their professional opinion. We even have a bespoke insurance product to protect the tenant and all "super rent" or top up is kept in a client account with full fidelity insurance. Our product does NOT fall under Home Purchase plan and therefore does NOT need regulating. We have jumped through many hoops to make this, in my opinion, the safest Rent to Own product in the market. We have many happy tenant buyers and landlords, and it can work when done correctly, but I totally agree there are cowboys out there ripping people off, as with any industry.

Mark Alexander

7:59 AM, 17th December 2013
About 7 years ago

Reply to the comment left by "John Paul" at "15/12/2013 - 18:41":

Thanks for the clarification John, much as I expected 🙂
.


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