What to look for when checking a tenancy agreement

sarah_elton

I'm selling my flat to an investor, who is letting us stay in it as the first tenants.

He is paying us a little less for the flat, and giving us six months free rent (he's a cash buyer and preferred to take less money out of the bank to pay for the flat, and give us the rent free period - fine by us).

He hasn't been a LL before. I've rented before but a few years ago now.

Because of the deal re lower payment + free rent, I said I want a signed tenancy agreement in place before we exchange contracts, starting at completion. This is just in case he paid less for the flat then said he wasn't renting it out after all.

Anyway, he's popping round tonight to show me the draft tenancy agreement and check we're both happy with the setup.

Now, first of all, beyond the obvious (rent amount, deposit amount, quiet enjoyment, that rent is inclusive of leasehold service charge), what do I look for?

Secondly, am I right in thinking it should be called an AST (Assured Shorthold Tenancy)? Not just something he's written with "tenancy agreement" at the top? Do ASTs have particular rights under law?

Finally, I'm thinking that I don't want it to read six months at £0 followed by £560 per month. I'm thinking that to best protect my position, it should read £560 monthly rent, six months rent have been paid in full in advance. That way, if he does subsequently decide not to let, we effectively have a receipt and can get that money back, making up the full sale value of the flat. Does that sound reasonable?

Robert_Sterling_3

Can you let a flat for £0 ?

poppysarah

Speak to a solicitor.

sarah_elton

Robert_Sterling wrote: »

Can you let a flat for £0 ?

Exactly - not sure where that would leave me legally. I think it should state the agreed rent and say that 6 months has been paid up front.

Sarah - thanks - my solicitor is going to get the draft afterwards to check too. Buyer is doing his own conveyancing and we're trying to get things done quickly. Ideally, the version that goes off to her will be one we're both happy with but I won't be signing until she's checked it for me.

tbs624

The agreement cannot be an AST if it is deemed that no rent/a very low rent is charged so you need proper advice from a legal professional with specific LL&T experience, from the start.

It sounds more as though this investor is perhaps hoping to avoid declaring any rental income to HMRC. Is it the case perhaps that he can't actually raise the full purchase price? Are there any stamp duty issues?

sarah_elton

No stamp duty - we're well under the threshold. He's a soon to be retiring cash buyer who has run a local accountancy business for many years. I've got no concerns about his ability to pay. I hadn't thought of the tax issue - probably why it suits him not to have the rental income start for six months.

Thanks for the tip - I hadn't been comfortable with the idea of a £0 rental contract, and I want an AST and the accompanying rights. I'll insist on it showing the full rental amount, but just saying that six months has been paid. And let my solicitor check it out from there.

sarah_elton

Called my solicitor. Her advice was to get him to pay the full purchase price and then pay rent normally.

I feel really bad messing him around - I should have checked with a solicitor before agreeing to his sale terms. It seemed fine to me - I assumed there would be a way to do the contract.

Now I have to mess a buyer around and change the terms in this climate. Yikes.

Phoned EA, asked them to ask him if he would (1) pay full amount and have a normal tenancy agreement but that (2) I'd be happy to sign before exchange so he still has a guarantee we'll stay put, and (3) I'd be happy to pay six months rent on the first day of tenancy as I've done with previous rentals. But that I just want normal sale, then normal rental process.

So the net result will be the same for him, cash wise at the end of completion day.

Fingers crossed he goes for that - depends the extent to which it was easier for him to do the deal the other way.

Premier_2

He'll probably go for it. It sounds like he wants the property.

Start looking for a new place to live. You'll probably be evicted in 6 months.

mlz1413

sarah_elton wrote: »

.
Phoned EA, asked them to ask him if he would (1) pay full amount and have a normal tenancy agreement but that (2) I'd be happy to sign before exchange so he still has a guarantee we'll stay put, and (3) I'd be happy to pay six months rent on the first day of tenancy as I've done with previous rentals. But that I just want normal sale, then normal rental process.

So the net result will be the same for him, cash wise at the end of completion day.

Fingers crossed he goes for that - depends the extent to which it was easier for him to do the deal the other way.

Does this mean the amount buyer knocked you down by was excately 6 months rent? If so you are not messing him around as it is just changing paperwork figures - no one has to find extra cash on the day.

You haven't said if you will be paying a deposit? he may not want one as you are paying a lump sum, but please make sure the inventory is done and signed so that at the end of the tenancy you don't end up arguing about what was in the purchase price and what wasn't.

sarah_elton

He offered £103,500, but said he wanted to pay £100k and give us six months free rent. Six months rent is actually £3,360 (£560x6), so £140 in it. I'm not even bothered if he wants to charge us £3,500 for the six months rent. Just hoping he doesn't say no to doing things properly because he only has £100k in readily accessible funds for buying.

Think I should listen to solicitor - Shelter website says it can't be an AST if no rent is being paid. So I think we should do a normal sale at £103,500 and then arrange the tenancy separately. EA is asking the guy so waiting to hear back. I did say I'd happily pay six months rent up front when we sign the tenancy agreement. Just wish I'd checked with a solicitor before agreeing to his offer - seemed fine at the time as I didn't realise about the AST issue.

Don't worry - I'd thought of that with deposit and inventory. Because all our stuff is in the flat and will continue to be, it will need to be clear in writing what stays when we move out and what doesn't. He hasn't said yet if he'd want a deposit or not - I don't mind if he does as we'd have to do it if we rented somewhere else and I'll make sure it goes into one of the registration schemes.

sarah_elton

Premier wrote: »

Start looking for a new place to live. You'll probably be evicted in 6 months.

Works for us - we want to move from our current town sometime around year-end. We put it on the market early knowing how long it can take to sell at the moment, and were going to have to do a six month rental in our current town if we happened to sell quickly. This deal works out great as it saves us a move.