Rent to Buy…. good or bad?

How does a deferred completion deal typically work in practice please?

Just the same as normal, except the period between exchange and completion is months or years, rather than a few weeks.

Would the buyer pay the typical 10% deposit on exchange of contracts and if so would the owner get that money immediately?

The deposit is negotiable, as are all the elements of the deal. If a deposit is paid it can go to the vendor or be held in escrow.

What if the owner then had the property repossessed and declared bankruptcy?

If the property was in danger of repossession it would mean that the buyer had defaulted on the deal, as part of the deal is that the buyer takes over the responsibilities of the mortgage and other outgoings. It is essential to inform the lender, as the mortgage terms will normally require consent if possession is parted with. 2. If the vendor is bankrupt then the TiB is still bound by the contract to sell, but can disclaim it if the contract is disadvantageous to the bankrupt’s estate-so if the value has risen significantly the contract could be voided.

What would happen if the owner or buyer died, would the contracts be transferable?

Yes, they bind the estates of the deceased.

What rights would the person who exchanged contracts have to occupy or sublet the property and would those rights cease if the contract was defaulted upon in any way?

The buyer would take over possession and live in or let the property, to generate the income to meet the outgoings. These rights are conferred by the contract of sale, and there are specified default events in the contract that remove each side’s rights if they occur.

In the phase between exchange and completion would the buyer have the same rights as a tenant or would their rights be completely different and if so how?

The contracts are flexible, and can reflect any range of rights the parties agree on. The key point is that the lender must agree to the buyer taking possession prior to completion, which if the loan is being serviced and arrears paid off they may well do (if they are still in the business of being mortgage lenders)

Reply to the comment left by “Mark Smith (Barrister-At-Law)” at “15/04/2014 – 19:50“:

Very interesting, thank you.

One more question, how much would it cost to put the papers together to do a deal like this properly?
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It depends on the complexity of the deal, but typically it would be £1500-2250 to act on the sell side and £2000-2750 on the buy side (HMLR work is needed), all + VAT.

I always give a fixed quotation for any matter with a no-increase guarantee.

Reply to the comment left by “Mark Smith (Barrister-At-Law)” at “15/04/2014 – 21:51“:

Wow, significantly more than a standard conveyancing job then. Is there much call for this? I would suspect, not just based on price but based on the fact we are now in a rising market I can’t see why a vendor would go for it. I can see the possible upside for buyers but without sellers wanting to do these unconventional deals I do wonder why they exist?
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From Mark’s first post, it is clear that Maria has discussed it first with him (not a problem), since most of the information is missing.
That’s why I was confused about why it was the tenant buying the property, or is it the buyer letting it out and collecting the rent.?…
anyway, whatever it is, I believe usually if you are giving someone an option to buy your property further down the line, ie. a purchase option, then they have to pay you for that option, ie. you get a fee now, they get the option later, if they want to excercise it.
If it is the tenant, then they should still pay you a fee for the option to buy your house later, if it’s gone up in value.

One idea that springs to mind is: why not let them buy the option, but also include a clause in it in case it rises in value, so they give you 20% more of any increase, but they are covering costs and expenses.

If the problem now is just covering costs and outgoings, just sell it on the open market, or go for that last idea I just suggested.

Reply to the comment left by “Jeremy Smith” at “16/04/2014 – 00:13“:

Hi Jeremy

For the record, I did have a conversation with Maria before posting her article. However, it lasted for no more that 20 seconds and the purpose of my call was simply to check that she was happy for me to use her name. No other detail was discussed.

I thought it was quite obvious that she was referring to a deferred completion deal from the outset based on her question. Not that it matters though as we have now begun a very useful debate on the merits and drawbacks of several different but related models often touted by the “Get Rich Quick” industry as the “no money required” way into property investment.
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Reply to the comment left by “Mark Alexander” at “16/04/2014 – 07:56“:

I have done a bit of research into the person who contacted me and he looks like a property investor. I have also today been contacted for the same property by a company who deal in ECO energy also wanting to ‘buy’ my property at market price following a suitability assessment – why cant I find a good old fashioned buyer!

Reply to the comment left by “Maria O’Neill” at “16/04/2014 – 10:51“:

Just shows how much the guru’s training the wannabes must be raking in from their courses though doesn’t it?!!!

Hang on in there, it its at the right price with the right agent a real buyer will come along sooner or later.
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i think youre right to be sceptical. i imagine all sorts of pitfalls eg overcrowding, property trashed combined with failure to complete, massive legal fees, tenants suing for disrepair, adverse credit ratings, etc, etc. they have no intention of completing unless values rise.