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tenant wants to buy portion of flat.

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snickpan
snickpan Posts: 154 Forumite
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in House buying, renting & selling
I want to sell a flat, £280,000, currently gives me a rental income of £1000. It's on the market, but tenant doesn't want to leave. "I've got £40,000" he says, so what can be done, if anything? I don't want the fuss and charges of re-mortgaging, as I did that recently, so would incur early repayment-penalties on the old mortgage, as well as the regular fees of the re-mortgage.
He's self employed, and let's assume he hasn't got the income to get a decent mortgage. I was intending to sell, as I need (oddly enough) just slightly north of £40K to clear a couple of loans. With a low declared income, could he get a small mortgage, so that at least he could buy a third of the flat, and reduce his rent by a third? Should we avoid the mortgage process altogether, and I just take his £40K, reduce his rent, or not, get something legally binding?
Perhaps I could treat it as a loan, and reduce his rent by what we consider fair repayments? I genuinely have no clue how this could work for both of us, if at all!

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  • snickpan
    snickpan Posts: 154 Forumite
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    to avoid lending fees, I take his £40, and put it in writing that he owns 14%, and reduce his rent by 14%, hoe legally binding do we need to be?
  • Comms69
    Comms69 Posts: 14,229 Forumite
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    Do you have a mortgage? If so, then this is not possible.


    (it may not be possible for lots of other reasons too)
  • need_an_answer
    need_an_answer Posts: 2,812 Forumite
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    What happens with things like property repairs?
    You pay some,he pays some. Really do you want a binding contract with a tenant going forward?

    Sell and be done.
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  • knightstyle
    knightstyle Posts: 6,990 Forumite
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    I think that would really put off buyers if you wanted to sell in the future.
    Why not a loan to you from the tenant which you repay at £1000 a month. they still pay you the rent and you use this to pay back the loan. OK it would tie up the rental for over three years but should work for you both.
  • SharkBite
    SharkBite Posts: 40 Forumite
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    If you take his 40k you are potentially committing yourself to a further 10 years on tenancy with this chap.


    Legally I suspect it would be difficult and your lender may have something to say about it.
  • davidmcn
    davidmcn Posts: 23,596 Forumite
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    snickpan wrote: »
    could he get a small mortgage, so that at least he could buy a third of the flat
    No. How would a lender repossess and sell a third of the flat? (or your lender do that with two-thirds of a flat?)
  • Out,_Vile_Jelly
    Out,_Vile_Jelly Posts: 4,842 Forumite
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    Depending on their income, the tenant may be able to get a mortgage with a £40k deposit, in which case you can offer first refusal. Anything else is just unworkable nonsense.
    They are an EYESORES!!!!
  • Mahsroh
    Mahsroh Posts: 769 Forumite
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    Out,_Vile_Jelly wrote: »
    Depending on their income, the tenant may be able to get a mortgage with a £40k deposit, in which case you can offer first refusal. Anything else is just unworkable nonsense.

    This.

    What you're suggesting is virtually impossible and full of potential issues both now and in the future.

    Your options are:

    1. Keep the flat and continue to take the rental income
    2. (legally) Evict the tenant and sell
    3. Sell to the tenant outright

    Those are realistically your only three options.

    Edit: 4th option - sell the property with tenants insitu - though your market would be severely limited.
  • saajan_12
    saajan_12 Posts: 3,622 Forumite
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    snickpan wrote: »
    I want to sell a flat, £280,000, currently gives me a rental income of £1000. It's on the market, but tenant doesn't want to leave. - So sell to another LL / investor (will reduce your pool of buyers and hence offers) or evict the tenant via Section 21 notice > court > possession order > bailiffs. "I've got £40,000" he says, so what can be done, if anything? - he can invest that somewhere? A house is very difficult to subdivide without other concequences. I don't want the fuss and charges of re-mortgaging, as I did that recently, so would incur early repayment-penalties on the old mortgage, as well as the regular fees of the re-mortgage.- If you sell, you'll incur ERCs. If you sell part of the house to tenant, you'll likely need a mortgage with both of you on the deeds & loan, so ERCs and new mortgage fees etc due, financially linked. To avoid that, either port the entire mortgage to another purchase, or don't sell.
    He's self employed, and let's assume he hasn't got the income to get a decent mortgage. I was intending to sell, as I need (oddly enough) just slightly north of £40K to clear a couple of loans. - what's the interest rate? if you're thinking of lowering the tenant's rent, can't you instead use that portion of rent to overpay loans? With a low declared income, could he get a small mortgage, so that at least he could buy a third of the flat, and reduce his rent by a third? - He'd need to be legally on the deeds, which would mean permission from your lender or more likely, remortgaging for you. Should we avoid the mortgage process altogether, and I just take his £40K, reduce his rent, or not, get something legally binding?
    Perhaps I could treat it as a loan, and reduce his rent by what we consider fair repayments? I genuinely have no clue how this could work for both of us, if at all!

    Co-owning the property with the tenant is a bad idea.
    1. Neither of you will be able to sell on your share alone later, so you both need to align when you want to sell up. What if one wants to move on earlier? Forcing a sale through courts is ££££
    2. Who pays for / decides repairs?
    3. Remortgage in both your names -> ERCs due, new surveys, can tenant prove self employed income?
    4. What if 'tenant' stops paying rent on your share or damages property? He'll be a part owner so eviction v difficult .

    Those are each major issues, so really a non starter. Your realistic options are
    A. Sell to an investor (likely less than mkt value)
    B. Evict tenant and sell on open market for full mkt value
    C. Don't sell, tenant loans £40k which you repay at £x, nothing to do with house.
  • snickpan
    snickpan Posts: 154 Forumite
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    Phew! I thought as much!

    Thank you all for your input, it's certainly focused my thoughts
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