Selling to a tenant through a rent to buy scheme?

Selling to a tenant through a rent to buy scheme?

13:06 PM, 20th June 2014, About 8 years ago 15

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My sister and I inherited the home where we grew up, modernised it, and have been letting it to a great couple for 3 years. We told them before signing the first AST that it would be our intention, one day, to sell the house (due to its distance and relatively poor yield compared to closer locations). As it happens, my young sister wants to buy her own place and my wife would like a range cooker and a big kitchen to put it in 😉 Selling to a tenant through a rent to buy scheme

We mooted the idea when we inspected/dropped an Xmas card round some six months ago (hoping to take advantage before the CGT rules changed in April) but typically since then, the topic has come up for discussion again and the tenants are looking at funding through a rent to buy arrangement. They can’t obtain a traditional mortgage as one partner is a mature student and wont graduate for two years.

As far as I understand, we agree a price at today’s value and the tenants are then responsible for maintenance etc but still pay rent as per AST until a mortgage is agreed. There is a legal agreement that they will buy the house at a fixed time in the future (2-5 years), the idea being that in that time, they can save a deposit while living in ‘their’ house.

Has anyone had any experience of this or are there any pitfalls/scams I should be aware of?

Am I correct in thinking that for the fixed time while saving for a deposit, the rent paid is still ours, or does that form part of the tenants deposit? What about the ‘overpayment’ they make each month to bolster their deposit?

What happens if they arent able to get a mortgage in the future (lending criteria, redundancy, house values falling – a flat market since 2010 according to est agents)? Is the legal agreement enforcable (I’m of the impression that they’ll be able to get a x4 joint mortgage to buy the house but havent got any liquid capital, so not really worth suing?) or what happens if they renege on the agreement?

Who owns the property between the time of agreeing to sell at X amount and when the mortgage is obtained a few years in the future?

And what the heck is a range for the kitchen?

The tenancy is due to come to an end in August, and we’ve agreed will run on periodically until an agreement is signed or it is put on the open market if the rent-to-buy proves fruitless

Many thanks for your thoughts

Geraint



Comments

by Mark Alexander

18:56 PM, 21st June 2014, About 8 years ago

Reply to the comment left by "Colin McNulty" at "21/06/2014 - 13:03":

Another makor downside I forgot to mention is that such deals would put you in breach of mortgage terms. If the lender was to call in their mortgage or reposes the property the tenant/buyer could sue the vendor to the point of bankruptcy in most cases.

I accept this doesn't apply to Geraint as his property is not mortgaged but it is a point that companies arranging these deals very "conveniently forget" to point out to most vendors, many of which have mortgages.
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by Colin McNulty

8:07 AM, 22nd June 2014, About 8 years ago

How so Mark? Sure you need to get Consent to Let. What mortgage term specifically do you think an arrangement like Lease Option or EwDC breaches?

by Mark Alexander

9:02 AM, 22nd June 2014, About 8 years ago

Reply to the comment left by "Colin McNulty" at "22/06/2014 - 08:07":

I would need to be privy to the conditions to be able to comment precisely but the acid test would be to seek consent from the mortgage lender to agree to the lease option deal. I have yet to see a lender agree! They will tell you specifically which of their conditions such an arrangement would be in breach of if you push the issue.

One obvious condition you would be likely to be in breach of is the granting of a tenancy which provides a longer period of security than would ordinarily be permitted, even when consent to let applies.
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by Colin McNulty

9:43 AM, 22nd June 2014, About 8 years ago

My understanding is a Lease and an Option are 2 separate contracts. There's no reason why the lease component can't be a 12 month AST that's renewed each year and so comply with the mortgage terms. And an EwDC is a normal contract of sale, just with a longer time period after exchange.

Anyway, I didn't want to get into a general debate about LOs and EwDC contracts, that's been done many times before and I'll leave that to my greaters and betters to argue about it.

I just wanted to make the point to the original poster to do their own due diligence and perhaps speak to a qualified solicitor who specialises in this area.

by Mark Alexander

10:16 AM, 22nd June 2014, About 8 years ago

Reply to the comment left by "Colin McNulty" at "22/06/2014 - 09:43":

Why speak to a solicitor when a specialist direct access barrister could be more cost effective? See >>> http://www.cotswoldbarristers.co.uk/

In the interests of transparency I am Chairman and non-exec Director of this company but I am not a barrister.
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