Renting property before buying it.

Littleweedj

With the current problems in the property market, has anyone ever rented their home to someone who wanted to buy it, but was not in a position to do so immediately. The property is owned outright and has no mortgage.

If the offer was to give you a small deposit, pay market rent and then buy by paying the balance in the future (say 6 months to a year) are there any pitfalls.

Obviously everything would be discussed and confirmed by both lawyers beforehand.

Would you be classed as a landlord, and therefore need to pay 20% tax on rental income and would you still be liable for any repairs, maintenance etc. Or is it possible to negotiate that the renters could treat the property as their own, do anything they wanted to it but general repairs etc. would be their responsibility as, in the near future, they would be the owners. Advice would be appreciated.

BigAunty

As far as I know, an agreement between landlord and tenant cannot over-ride their statutory obligations laid down in housing and taxation laws. A rental contract can contain any clauses it likes but these can be unenforceable because they will be superceded by national laws.

A landlord not providing an annual gas safety certificate risks being prosecurted for this criminal offence, punishable by large fines and potentially imprisonment (think of the consequences of tenants who die from carbon monoxide poisoning, for example).

Littleweedj

The village I live in has no gas supply.

Yorkie1

Fraught with difficulties.

You will be a LL with all the responsibilities and duties that entails.

You could not just continue with your current mortgage because that is based on you being the occupant. You'd have to seek consent to let or, if not forthcoming, change to a BTL mortgage.

You'd need to change insurance to a LL's insurance.

Yes, you'd have to pay tax as a LL. Yes, you'd still be responsible for the maintenance etc.

And, then, what happens if either you or the buyer / renter cannot follow through on the initial agreement? You'd need to evict them.

There is something at the back of my mind to suggest that what you are proposing may not in fact be lawful - but someone will be along to confirm or deny this.

Littleweedj

I'm lucky enough to own my property outright so dont need any consents from lenders.

Thought if all the terms and conditions were confirmed between our two laywers then each party would be legally bound to adhere to it. The other people really want to move into my property and I'm very eager to move out.
Has been advertised for over a year now and have had quite a few who want to make an offer but are unable because they cannot sell their own properties.

Obviously would defintiely not be my first choice, as would mean I would have to rent a place myself, but felt it was a good option for being able to move on. However, at the same time, don't want to do anything I'd regret in the future.

lvm

"Rent to Buy" schemes are quite popular in America (or at least were when I looked a few years ago). My Dad has also had a rent to buy agreement on one of his rental properties.

Normal rental agreement needs to be in place (landlord registration/income tax needs to be paid) and a separate legal document on top of this.

The agreement my Dad had, the tenant paid a higher than market rent then there was some agreement that a certain % of rent paid would be gifted as a deposit (or something along those lines...I'm sure there would be some benefit to this but can't think what!)



You're usually looking at a longer tenancy too (5yrs) as I'm not sure how much the financial position of the tenant would change in just 6 months. Would this be enough time to raise a 10% deposit.

Anyway, hope that helps!

P.s...could you not take equity out of property which would reduce amount of tax you'd need to pay and would allow you to purchase another property instead of rent?

Annisele

Tenant moves in, doesn't pay any rent, trashes the place, then refuses to either buy the place or move out.

Tenant moves in, pays rent as agreed, then says "but house prices have dropped like a stone - there's no way I'm paying the amount agreed six months ago".

Tenant moves in, pays rent as agreed, but prices rise - you want to sell for more, but tenant refuses to pay the higher price and refuses to leave.

Tenant moves in, his financial position never changes, so he's never in a position to buy - but you can't buy anywhere else until you sell, so you're in limbo.

I can't see that you can possibly come to a binding agreement now that you'll sell at £x in y months. That would be called exchanging, but with a long period before completing - and the whole point is that your "buyer" isn't in a position to exchange.

Littleweedj

Just to say thanks to you all for good advice and comments.

Have now considered it not worth the uncertainty or hassles which may be involved and won't be renting to anyone. So keeping fingers crossed a buyer will be found in the not too distant future.