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10:32 AM, 12th August 2017, About 7 years ago 54
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A couple who purchased their neighbour’s house to help him out of financial difficulty have been ordered by a judge to give him a 90 year lease at a fixed rent for the whole term.
David and Sheila Harding, who purchased the property in 2001 from their neighbour Mr Colin Gregory, now want to sell to fund a new life in Spain, but in the hearing were branded by the judge as “foolhardy in the extreme” and refused permission to appeal.
16 years ago Mr Gregory confided in his neighbours and close friends, the Hardings, of his difficulties in paying his mortgage. To assist, the Hardings purchased his property for £143,000 with a ‘Buy to Let’ mortgage, allowing Mr Gregory to stay in his home at an agreed rent of £800pcm.
The property was recently offered back Mr Gregory to purchase for £60,000 less than the now £310,000 value. He was given a year to find the funds, which he was unable to do.
The Hardings eventually found a buyer who agreed to continue renting to Mr Gregory but subject to an increased rent to reflect the current market value, now £1,200 a month. This was refused by Mr Gregory and the case went to Brighton County Court.
Mr Gregory said he sold the house to the Hardings for a reduced price, only because he could rent it for as long as he wanted.
We have not seen the actual tenancy agreement, but there was apparently no mention of the lifetime occupation and fixed rental in the documents.
The decision by the Judge will also adversely affect the value of the security of the mortgage lender, which would now be well within their right to call in their mortgage or even force a sale through LPA receivers for breach of contract resulting from the granting of a 90 year lease. The property could be valued as little as 20 times rent (£800 x12x20 =£192,000), which is roughly what freehold ground rents trade at. It will be virtually impossible for the Hardings’ to sell the property at the normal market value or to remortgage now.
The case was won by Mr Gregory’s solicitor using two extremely old pieces of law which included:
The Hardings were ordered to pay Mr Gregory’s costs of £11,000 and they can now only sell the property to a buyer prepared to rent to Mr Gregory for 90 years at £800pcm.
Although the Judge refused the right to appeal, Property118 was also refused this by Mr Justice Teare in our case against West Brom. Mark Smith (Barrister-at-Law) made an application to a higher Court for leave to appeal, which was granted and we went on to win our case at the Court of Appeal. There is hope that this case could still be overturned. However, there are set timescales to seek leave to appeal from a higher Court and we do not know when the judgment was handed down. It could be too late!
If there is a process whereby the Harding’s could attempt take this further we hope they do, and we are keen to do all we can to help because this judgement could impact on many more landlords.
Even if an application for appeal can be made within the timescales, the success of it would be highly dependent upon what the tenancy agreement. If it is an AST or an Assured tenancy, and even if the Harding’s hadn’t properly served a section 13 notice to increase rent, they would have had the right to do so. Surely, that alone would be grounds for an application to appeal?
Back in 1948, when the original case Law relied upon in this case was created, AST’s and Assurred Tenancies did not exist. All Tenancies were protected at that time. This might be another angle on which an appeal case could be built on.
If a s13 notice was served correctly then the maths suggest that Mr Gregory would be two months in arrears within 6 months and of the s13 notice expiring as a result of refusing to pay the £400 a month rent increase. On that basis, the Harding’s could have served a section 8 notice to seek possession on the grounds of their back-stabbing former friend being two months in arrears.
If anyone out there knows the Hardings please ask them to contact Property118 so we can investigate if there is the possibility to win a right to appeal. Time is of the essence!
It will also be interesting to ascertain how many Sale and Rent Back (SARB) agreements and mortgages this case could affect.
Mr Harding Ian quotes to have said after the case, “‘We tried to help out, not only as a good neighbour and landlord, but we considered Colin a good friend.
“We own it, we pay the mortgage on it, we bought it, but due to a nearly 100 year old law he gets to live in it on the cheap. We have nowhere to turn to and can’t believe it has turned out like this.
“We went into court told by our solicitors that there would be no problem and walked out with him winning the case and us owing him costs. It’s ludicrous. There is nothing more we can do.
“We want to warn other people who are thinking of entering into any kind of agreement like this. We did everything by the book and look where it ended up.
“Nobody had ever heard of the law the solicitor used but it has cost us dearly. We’re stuffed!”
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Dylan Morris
11:34 AM, 15th August 2017, About 7 years ago
Reply to the comment left by land law at 14/08/2017 - 22:49Assuming there was a BTL mortgage to fund the purchase, then with no AST in place the borrowers (and their solicitor) did not fulfil the requirements of the lender. All BTL lenders will require an AST to be in place (usually max of 12 months term) at the point of completing the purchase, if there is a current tenant in situ.
Mark Smith Head of Chambers Cotswold Barristers
11:53 AM, 15th August 2017, About 7 years ago
Reply to the comment left by Dylan Morris at 15/08/2017 - 11:34Exactly.
The problem for the Hardings was that they seemingly had not specified the end-date of the tenancy. The 90 year lease only kicked in as the tenancy was said to be for as long as the tenant wanted it.
Giles Peaker
18:15 PM, 19th August 2017, About 7 years ago
Reply to the comment left by sam at 14/08/2017 - 22:32
Before you do anything of the sort, check out s.163A Housing Act 1985. What you are proposing would certainly be caught, so the discount would have to be repaid.
Giles Peaker
18:16 PM, 19th August 2017, About 7 years ago
Reply to the comment left by sam at 14/08/2017 - 22:33
The tenancy ends with his death.
Giles Peaker
18:18 PM, 19th August 2017, About 7 years ago
Reply to the comment left by land law at 14/08/2017 - 22:49
Just so. Of course, the purchasers may not have been exactly open with their mortgage lender...
Giles Peaker
18:20 PM, 19th August 2017, About 7 years ago
Reply to the comment left by land law at 14/08/2017 - 23:02
No, you can't. It is a deferred sale agreement, meaning that the discount would be repayable from the point the agreement was entered into, not of any later transfer under the agreement. S.163A Housing Act 1985
Anthony Hawes
9:32 AM, 20th August 2017, About 7 years ago
Regardless of whether this is eventually proven to be a serious issue from the point of view of the tenancy, it could already be having serious ramifications for the financing of properties acquired under some kind of SARB arrangement.
I was told by a fellow landlord last week that he is unable to refinance such a property as no lender will consider it because they can see from electoral roll/land registry that the tenant was there and/or owned the property prior to his purchase.
Has anybody else come across this? If it's true it could soon be a big issue as a lot of mortgages on these types of property will be expiring in the next few years.
Puzzler
11:10 AM, 20th August 2017, About 7 years ago
Reply to the comment left by Giles Peaker at 19/08/2017 - 18:16
Actually I think it would go into his estate
Puzzler
11:12 AM, 20th August 2017, About 7 years ago
Reply to the comment left by Giles Peaker at 19/08/2017 - 18:18
They may not need to have been, I have exactly this situation from before this was outlawed and it may now be that my fall back of selling cannot be used. What I don't understand is why they didn't involve the tenant in the discussion and/or offer some of the proceeds so he could continue to pay the rental difference. Would depend on the tenant's age of course.
Mike
11:48 AM, 20th August 2017, About 7 years ago
A case like this should not have gone to a Court in the first place, since two friends were involved where one tried to help the other, which means when you offer someone help, you do not try to profit out of someone's misery, so if a friend wanted a short term loan, and you were able to lend him money, you should not charge any interest, because after all helping a friend means helping without profiting, otherwise one who needs help can go to commercial banks for a loan.
In this case the friends who tried to help McGreggors got tempted to profit out of helping for 16 years to stay in their home at a reduced and agreed rent of £800, which means over 16 years McGreggors paid £153,000 in total rent and also lost out when they sold that house cheap, by how much I don't know, the figures quoted were that the house was purchased for £143,000, in 2001, so presumably, the friend who purchased it on buy to let mortgage still has some considerable amount outstanding. By my guess in 16 years on a 20 years mortgage most of the capital has now been paid, leaving 4 years more to pay, on the other hand if it was a 25years Mortgage term, then there may still be another 9 years to pay repayments.
If both friends had sat on a table and discussed their problems, that why he wants to now sell it back and go to Spain, to retire, etc, he should have said look, I have helped you and now I need your help, by buying this property back from me, allowing a reasonable amount of gain, so in other words if the market value of the property is now valued at £310,000, and Mc Gregors have paid £153,000 in rent, and by selling it cheap to them in the first place saved them let us say for the sake of argument £60,000, so now Mcgregor's should not be asked to buy it back at full market value but a lot less, then this argument would never have taken to courts.
So if assuming the friend who bought McGregors house for £60K less than the market value, they benefited that amount 16 years earlier, and also received rent of £153,000, making a total gain without any interest added of £213,000, and the current market value of £310,000, this difference being £97,000, assuming there is still another £40,000 of mortgage to pay, for the next 9 years, then McGregors buy this house for £137,000 or less, and not full current market value of £310,000 which would clearly indicate friend trying to profit out of misery of another. this is probably why this matter went to court in the first place, whereas if two friends respected each other and tried not to use one's misery to profit out of,McGregors would have more likely agreed to buy it back at around £135,000-£145,000 price tag, and both would have stayed friends.