Buying a house with tenant on Periodic Tenancy?

Mike3

This is my first post so forgive me if any further info is needed or this post should be elsewhere!
I am purchasing a house whereby the current owner purchased the house off the current tenant. The tenant owned the house until 2007, (he has apparently lived there for some 35 years roughly 1977) at which point he sold the house to a friend and rented it back off them.
The tenancy agreement is for 6 months which started back in 2007 and has never been updated. On the tenancy it does not state AST just that it’s for 6 months, with one months’ notice either way. There is no mention of rent reviews or deposits etc. The house is going to auction next month and it states tenant on periodic tenancy. I’m not sure whether its relevant but the rent is at least £200 less than the going market rate.
Now I may never ask the tenant to leave but I want to know my position should I need to? I understand he is now on a periodic tenancy, but with the length of time he has been there and the previous ownership my question is it still 2 months notice? Is there anything I should be aware of? I will be buying the house cash so no need to worry about the mortgage company etc.
On a separate note, the house is a tip! And he advises me he is behind on his rent payments, I am not sure if this affects my legal position on giving him notice but thought I would mention it.

franklee

I'd be wary of taking the written tenancy agreement at face value. What you're looking at is a sell and rent back scheme. Even though the tenancy can look like an AST often these deals have some under the counter promise that the tenant can rent as long as he likes in return for selling the property cheaply to the original landlord. Presumably you would inherit these issues should you buy and become the new landlord? Suggest you look into details of the pitfalls of sell and rent back plus what exactly was this particular tenant promised and did the house sell for under market value last time? Google sell and rent back e.g.
http://www.adviceguide.org.uk/england/debt_e/debt_mortgage_problems_ew/debt_how_to_sort_out_your_mortgage_problems_e/sale_and_rent_back_schemes.htm

Mike3

Thanks Franklee, this doesnt appear to be part of a scheme as such. The tenant worked in a plumbing merchant and when he split with his wife, he sold to a local builder and agreed to rent back once the wife was paid off. This is the story i have been told. If this isnt part of a scheme and the tenancy agreement is the only document that exists, whats my position?

franklee

Maybe I'm being slow but why isn't that sale and rent back? It certainly sounds like that to me. Individual landlords could operate sale and rent back in the past. Can you ask the tenant what security he was promised?

G_M

I would be very wary.

* It certainly sounds like sale/rent back - not an area I'm familiar with but you need to research it before you commit

* don't take the word of the tenant on anything: rent, tenancy, arrears,.....

* With an auction, I'm not sure how you confirm/validate the terms of the tenancy - but my own instinct would be to question everything and take nothing on trust

* if it IS a Statutory Periodic Tenancy, you are right - 2 Tenancy Periods Notice (not 2 months).

* if the place is a tip - you will be responsible for ensuring it complies with legislation eg 'habitable'; working heating, hot water etc

* if repairs are needed, and required by the tenancy, you will be responsible.

* if arrears are greater than 2 months, you ould use a S8

franklee

If the place is a tip and the rent is well below market rents and the tenant behind with rent then if it's so easy to evict the tenant why doesn't the current landlord do so? Why put it to auction, that's often a way to shift the "awkward" properties.

If the tenant claimed he sold below market value in return for security of tenure (even though the written tenancy agreement doesn't reflect that) it could potentially be for the courts to decide what claims if any the tenant has. Not to mention the OFT found that home owners who entered such deals might be cheated if they were misled into believing their tenancies might last for a long time or if their rents were subsequently increased to levels they could not afford. You can certainly have a verbal agreement at odds with the paperwork, IIRC that was rife with sale and rent back.

If the tenant sold at below market value, price easily obtained from the land registry, then the question is why? Plus why is the rent below market rent?

These are some of the issues I'd want answered.

If the tenant is approachable I'd certainly be asking their side of the story but not relying on it and then check that out too.

Mike3

From both of the replies can I assume that the worst case scenario is that I wont get the house back in my possession until the current tenant passes away or chooses of his own free will to move out? If thats the case Im happy with that, I dont want to move the old bloke on anyway, I wouldnt want anyone to do that to a relation of mine. Hopefully he cannot pass the tenancy onto any family member otherwise I may never get the house back! Its habitable but any mess is his, e.g. cat mess, cat food and lots of cigarette smoke. The kitchen and bathroom are useable. No heating except a gas fire which hes happy with. Hes an old guy I dont think he is deceiving me, he just doesnt know whats going on with his house an understandably worried.
From your replies I can also 'evict' him if he falls behind on rent?
Thanks
Mike

theartfullodger

Walk away: It's tainted with dodgy dealings & legal quicksands,.. and many Judges might favour the occupant..

There will be other deals with better ethics...

Cheers!!

Werdnal

Mike3 wrote: »

From both of the replies can I assume that the worst case scenario is that I wont get the house back in my possession until the current tenant passes away or chooses of his own free will to move out? If thats the case Im happy with that, I dont want to move the old bloke on anyway, I wouldnt want anyone to do that to a relation of mine. Hopefully he cannot pass the tenancy onto any family member otherwise I may never get the house back! Its habitable but any mess is his, e.g. cat mess, cat food and lots of cigarette smoke. The kitchen and bathroom are useable. No heating except a gas fire which hes happy with. Hes an old guy I dont think he is deceiving me, he just doesnt know whats going on with his house an understandably worried.
From your replies I can also 'evict' him if he falls behind on rent?
Thanks
Mike

If the property and the tenant's living conditions are really that bad, and someone tips off the EHO after you have bought it, YOU would get an enforcement notice to bring the place up to standard at your cost and within a reasonable timescale, plus possibly face re-housing costs the for the tenant whilst the work is done.

If you try to evict through being behind with rent (via an S8 notice) the tenant can claim disrepair over the state of the property and have this notice dismissed.

I agree with the others above, that the doubtful nature of the tenancy and the original "deal" with the owner/landlord at the time are a big concern.

franklee

Mike3 wrote: »

From both of the replies can I assume that the worst case scenario is that I wont get the house back in my possession until the current tenant passes away or chooses of his own free will to move out? If thats the case Im happy with that, I dont want to move the old bloke on anyway, I wouldnt want anyone to do that to a relation of mine. Hopefully he cannot pass the tenancy onto any family member otherwise I may never get the house back! Its habitable but any mess is his, e.g. cat mess, cat food and lots of cigarette smoke. The kitchen and bathroom are useable. No heating except a gas fire which hes happy with. Hes an old guy I dont think he is deceiving me, he just doesnt know whats going on with his house an understandably worried.
From your replies I can also 'evict' him if he falls behind on rent?

No I do not think you can take that as worst case. I can think of much worse although I do not know how likely it would be in your situation.

However you have noticed there are worrying signs the tenancy agreement wasn't properly drawn up (it doesn't state AST, the landlord's notice one month). It could be the initial sale was dodgy. Not to mention the owner, now tenant, is elderly and therefore may have been taken advantage of.

A quick google turned this up:
Sale and rent back - unfair contract?
http://www.practicalconveyancing.co.uk/content/view/11405/1118/

"Several cases have gone to court, with the courts generally being keen to do what they can to side-step the legal documentation. For instance, in a recent case it was held that failure to include all of the terms in the written agreement meant that there was a collateral contract that was not in writing (which meant the whole transaction failed for want of writing under s2 Law of Property (Miscellaneous Provisions) Act 1989)."

and

"Even more interesting, however, was the obiter suggestion by the judge that part of the pay-back provisions might have been unenforceable under the Unfair Terms in Consumer Contracts Regs 1999."

What I think you can take is that you need to do further research and seek proper legal advice.

I hope you will let us know how it goes.

Mike3

Franklee, thanks again for your help. Its clear you feel this is one to steer clear of. And yes you have definitely made me research further. I will venture to the auctions and see how low it goes for. I think its unlikely that I as the new purchaser could lose the house due to the previous seller 'screwing' the owner before that. That said I have rang two solicitors and both have advised to give it a wide berth. Not because of losing the house but because the tenant would be awkward to remove if needed. From my stance I'm 32, have cash to buy a pension pot and with this I see steady rent (albeit low now) and a good chance of potential capital growth moving forward (depending on what I get it for). Yes the next few years could be awkward, but I am a genuine buyer, Im happy for the tenant to remain as long as needed and see this as a long term investment. I will mull it over but its likely I will be going on the 6/2 with the intention to buy.

Please feel free to add any other comments/advice things to consider and I will update you all in February.

Mike
On a side note from the sols, all tenancies after 2007 are ASTs whether stated on there or not.