Renting out house as a commercial lease

XR219

I have a house that has been rented out for the last few years. However, I am keen to off load the property because I don't have the time to properly solve any problems that the tenants may have. The local housing market is very slow and hence there has not been a great deal of interest in buying it.


I have been approached by a company who take on properties on commercial leases, which they then sublet to tenants. This is an attractive solution from my point of view, as it means that although the income from the property would be below rental market values, I would not have any responsibility or costs associated with it. This would solve my problem of not wanting to be a landlord and being unable to sell.


Does anyone have any experience of such arrangements? One problem that I can envisage is that if the company fails to pay me but has a tenant in place, it would potentially difficult for me to regain occupancy of the property. There are bound to be other pitfalls, so grateful to hear of any advice!


Thanks

sparky130a

XR219 wrote: »

I have a house that has been rented out for the last few years. However, I am keen to off load the property because I don't have the time to properly solve any problems that the tenants may have. The local housing market is very slow and hence there has not been a great deal of interest in buying it.


I have been approached by a company who take on properties on commercial leases, which they then sublet to tenants. This is an attractive solution from my point of view, as it means that although the income from the property would be below rental market values, I would not have any responsibility or costs associated with it. This would solve my problem of not wanting to be a landlord and being unable to sell.


Does anyone have any experience of such arrangements? One problem that I can envisage is that if the company fails to pay me but has a tenant in place, it would potentially difficult for me to regain occupancy of the property. There are bound to be other pitfalls, so grateful to hear of any advice!


Thanks

Not with your bargepole.

If they had that much confidence they'd offer to buy the property.

XR219

Thanks for the response, I think...


So do you have experience of a similar arrangement? The whole point is that the commercial buyer wouldn't want to pay market value for the property (which is what I'm looking for), as they would need to make their own profit on it. Renting out for a defined period adds some more to the collective pot. The lease arrangement would include an option to buy eventually, for an upfront fee.

teddysmum

What if they fail to pay you or go out of business, leaving you with a tenant, who is difficult to remove and lots of repair work to do ? You will have less income to cover this, than if you rented out direct, as they will have being paying you less.

sparky130a

XR219 wrote: »

Thanks for the response, I think...


So do you have experience of a similar arrangement? The whole point is that the commercial buyer wouldn't want to pay market value for the property (which is what I'm looking for), as they would need to make their own profit on it. Renting out for a defined period adds some more to the collective pot. The lease arrangement would include an option to buy eventually, for an upfront fee.

So negative equity? I'd be very careful with this company.

csgohan4

If it's too good to be true....

Your still responsible as you are the Landlord and own the house. If they don't get a gas safety check or protect the tenants deposit, guess who's going to pay for it?

XR219

I don't believe I would be responsible for either of those things on a commercial lease. I can however imagine that there could be a problem in physically taking possession of the house, if the company went bust.

I own the house, so no problem with equity.

I'm not sure why it is too good to be true. I wouldn't be getting market value rent for it, but neither would I have the problem of maintenance.


Thanks for the input everyone!

sparky130a

XR219 wrote: »

I don't believe I would be responsible for either of those things on a commercial lease. I can however imagine that there could be a problem in physically taking possession of the house, if the company went bust.

I own the house, so no problem with equity.

I'm not sure why it is too good to be true. I wouldn't be getting market value rent for it, but neither would I have the problem of maintenance.


Thanks for the input everyone!

You believe wrong i'm afraid.

XR219

That's good advice thanks; everything I have read suggests that gas safety checks and the like would be part of the lease, which I effect they would be if I had a full maintenance contract on the property. If you have information to the contrary, do you have a reference? Thanks!

G_M

You would be letting, commercially as you correctly say, to company A. Company A would then be sub-letting under an AST to the the sub-tenants.

If (for example) the sub-tenants complained to HSE that there was no valid gas certificate, HSE would contact their landlord (your tenant). It is unlikely the Head Landlord (you) would be prosecuted.

Having said that, I have been monitoring/contributing to this forum for several years. Periodically these 'guaranteed rent schemes' come up, and always because of issues between the owner/Head Landlord and the commercial tenant.

The most common issue is around contract termination, and the complexities of evicting (or keeping!) the sub-tenant.

Damage or other problems caused by the sub-tenants is also an issue since the Head Landlord has little control (and certainly can't evict the occupant).

Hence my advice has always been:

Some Housing Associations, councils, and private letting agencies offer schemes which guarantee your monthly rental income, removing the risk of costly voids between tenants. The advantage of these schemes is obviously the certainty of regular income to pay your mortgage etc. Against this you must weigh 1) the (significantly?) lower rent you will receive; 2) the removal of your freedom to select either the specific tenant or even the type of tenant; 3) the reality that the HA/agent etc will have little concern for the protection/condition of your property; 4) the reality that their priority will be to have a tenant (any tenant) in occupation. Additionally you should ensure that your landlords insurance/mortgage terms do not prohibit the type of tenant the HA/agent plans to install.

Additionally, be aware your contract will be a commercial tenancy, not an AST (Assured Shorthold Tenancy). This has significant legal ramifications (eg S21, S8, S13 Notices don't apply).

* New landlords: advice, information & links

I accept that landlords rarely post here when things go smoothly, so one would expect to hear more from LLs in difficulty, but I have frankly never read here of a LL who was happy with one of these arrangements.........

edit: you'd also need to review your insurance. Most landlord policies require you to let on an AST. Some also restrict the catagory of tenant you can let to.

Norman_Castle

There's a letting agent near me who manage privately owned properties but only lets to tenants from the councils waiting list. Apparently they guarantee the rent even when empty and manage the tenants and maintenance. They also claim to return the property in the condition they receive it.
It sounds an easy option but presumably there's a management fee.
If you intend to do this ask about gas safety checks, deposits and eviction etc.