Repairing corporate lease offer?

by Readers Question

8:36 AM, 3rd June 2016
About 3 years ago

Repairing corporate lease offer?

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Repairing corporate lease offer?

I currently have a house to rent and am advertising on the usual sites. I have been contacted by a company and been made an offer which seems too good to be true. So it probably is!dismiss

Before I dismiss the offer, I thought I would see if anyone else has experience of leasing to a company offering something similar.

They are offering to ‘Lease’ my property from me for 2 to 3 years, during which time they will put their own clients in, giving me my full asking rent, making good any minor repairs, doing gas and electrical safety checks for free, and guaranteeing my rent during any void periods.

Anyone any ideas what the pit falls are?

Many thanks

Sam



Comments

John Curtis

14:46 PM, 3rd June 2016
About 3 years ago

Run a mile. Their idea of wear & tear may be nothing like yours and the tenants are yours regardless of who lets them in. Be careful, past experience is a good tutor.

Robert Mellors

15:06 PM, 3rd June 2016
About 3 years ago

Hi Sam

This is what is called a Rent to Rent scheme. There are good companies and organisations that do this, but there are also some that are not so good. Have they advised you about the type of tenants they will be putting in the property? Have they advised you whether it will be a single household or a multi-let HMO?

If they are paying you the full market rental value for the property then they would be unlikely to be able to make a profit if they are re-letting it to a single household (e.g. a family let), in which case they may let your property but never pay you the rent they promised.

If they are paying you the full market rental value for your property and are going to use it as a HMO, then they should be declaring this to you, because they would need to do various alterations to the property to make it suitable for this use, e.g. fire doors, thumb turn locks, stud walls, fire alarm system, etc. It also has potential implications for your legal liabilities, e.g. buildings insurance, compliance with mortgage conditions, etc. If they are not making the necessary alterations to the property so as to comply with the HMO legislation, then they could be putting tenants' lives at risk and putting you at risk of legal action against you.

Having said all that, there are some good Rent to Rent schemes, particularly those run by housing associations, not for profit companies, and local authorities.

My own company, is a "not for profit" housing association that has been operating a Rent to Rent scheme for about 10 years. I only do 5 or 6 year leases, because the amount of money we invest into the property to bring properties up to the HMO specification, means that we lose money for the first 3 - 4 years (i.e. it takes that long to recoup the investment), so it is only in the last year or two of the lease period that we make a surplus (to re-invest into further housing provision).
- Having experience of this market, I would be very wary of any company wanting to lease a property for less than 5 years and yet still promising to do all repairs, guarantee the rent, etc. If you message me with your e-mail address I will happily send you details of the Rent to Rent scheme that I operate so that you can compare it with what you are being offered, and that may help you to see if you are being offered a genuine deal, or someone is trying to con you.

Gary Dully

23:50 PM, 4th June 2016
About 3 years ago

Hello Sam,

I also do a few rent to rents and I hope to do more.

You should have a solicitor involved in this process and they will be looking after your interests and not the companies.

I assume that you both had a Head of Terms that was presented to your solicitor, simply make the company liable for anything worse than fair wear and tear and have a damn good inventory carried out.

The properties I took over were absolute wrecks and I have paid a fortune out in renovating them, they won't show a profit for about 3 years yet, but my term was for the remaining term of the mortgage.

Also my contracts have a lot of clauses that I have to obey or I can lose my option on the property.

They are not a well known strategy, but I actually like them and I know that the owners do, because I pay all their finance costs and they still own the property.

Jon cull

12:06 PM, 5th June 2016
About 3 years ago

This is a great win-win strategy, it's a win for you the owner, getting a guaranteed rent each month, not having to worry about your property, although you probably will for the first few months! Your guaranteed rent will probably be below the market average for a family let. Maybe £100 or £200? But it's guaranteed AND with no voids, no call outs, no agents fees etc.... This is a win for the investor too, he doesn't have to find a large deposit to buy your house, although the longer the deal the more money he will be willing to invest. If he has done the deal right (win-win) he should get good cash flow from the property. if he/she hasn't done it right, it CAN go wrong!
However, firstly you must do your due diligence on the company concerned. You must most defiantly use a lawyer who understands exactly what it is you are entering in to. There are a few specialist lawyers in these types of agreements. As each Rent2Rent deal will be different, so no two deals are identical. Make sure too, that you keep paying your building insurance.....that is.a must! You are up to date with your mortgage, although that is up to the company you choose to use to check. We ALWAYS do!
If you are happy with what is being offered and you've used a good lawyer you will win!
We always have heads of terms, this is what's to be included in the contract.
If he wants to buy your property then that is a different type of contract: i.e. Lease purchase Option for example and that is a totally different type of agreement so, don't mix the two different types of deals up.


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