Holiday Let Blues

anders170

Hi, Im just about to sign contracts on a property I planned to buy for a holiday let business. Ive used a broker and she suggested a law firm. Now the deeds were sent to me today, it says at the bottom "Restrictive covenants: must only be used as a private residence, and not as a business". It is in a Norfolk seaside village. My broker said I should get an "Indemnity guarantee policy", the lawyer said the broker instructed her it was a buy to let property! Anyone had any similar experience and could help with suggestions? Thanks

00ec25

back out as fast as possible and then consider suing your broker

an indemnity policy is rather pointless since all it covers is the costs dealing with the council. It won't stop the enforcement of the restriction which given the nature and location of the property is presumably a covenant that "people" will be aware of and so likely to peruse

as ever with covenants, the key is understanding who has the right to enforce the covenant...

listen to your solicitor, not your broker
what is the attitude of the local council towards planning permission for holiday lets

G_M

Whether anyone else has had a similar experience is irrelevant.

The property cannot be used as a business. You want to use it as a business. Don't buy it.

Indemnity insurance (if available, and if valid - which I doubt) will not protect you from being forced to give up the business by whoever can enforce the covenant. It will simply pay out to cover any of your consequential costs.

I'm not sure what those would be:

* The costs associated with re-selling? I doubt the insurer would cover those.
* the lost income from the business you were forced to give up? Likewise!
* the legal costs of fighting enforcement of the covenant? Maybe, but still would not help if you lost the case

anders170

Hi, Ive realised that is the only solution now. Does anyone hav any idea where I can find someone to sue the broker/solicitor? It seems a minefield of firms on the internet who would be pleased to offer me help for probably a lot of money. Im on Tax credits so limited income. The broker arranged me with a Together loan for the deposit of the new property (first charged to the house I live in) at 9% and a holiday let mortgage from Prinicpality at 5%, both interest only. Im due to make the first payment on the Together loan next week with no property connected with it. Im really in a fix!

Comms69

anders170 wrote: »

Hi, Ive realised that is the only solution now. Does anyone hav any idea where I can find someone to sue the broker/solicitor? It seems a minefield of firms on the internet who would be pleased to offer me help for probably a lot of money. Im on Tax credits so limited income. The broker arranged me with a Together loan for the deposit of the new property (first charged to the house I live in) at 9% and a holiday let mortgage from Prinicpality at 5%, both interest only. Im due to make the first payment on the Together loan next week with no property connected with it. Im really in a fix!

I'm genuinely shocked it got this far. Where's the business plan?


You need to find business rates, loan repayments, mortgage repayments, expenses and income (and tax!) - sounds like it falling through is the best possible scenario.


How much were you hoping to make (and please don't say it rents for £350 a week, so 52x£350 = £18,200)

lincroft1710

You can buy it and let it out as someone's main home, but not as a holiday let. If someone rents it from you to use as their main or sole residence, then that usage complies with the terms of the covenant.

anders170

The lender asked for a letter from a holiday let company who reckoned it would get a list of rates for different seasons, topping £25k a year.
My question now though is what can I do now? My solicitor is currently saying I have to take out an indemity policy, Im saying that isnt an option. I want to opt out of the purchase but I dont feel I should be the one to pick up the tab for this error, if the covenant had been spotted at the outset I would have walked away then, not after spending my life savings on commercial valuations and legal fees etc. They're saying if I pull out then I will have made that decision, and therefore still be responsible for the legal and brokers fees/loan arrangement fee etc

elsien

Parent had this on a property she was running as a nursery, but didn't find out until after she'd bought and the nursery had been running for a few years. In her case as it was solicitor negligence they paid for the indemnity. Which was never needed as the covenant was put on in the 1800s and there was no longer anyone around to enforce it.

So when was your covenant put on, who might be able to enforce it and is it an area where this is likely to happen? The circumstances of the covenant dictate whether you want to take the chance or not. But mention of holiday lets would imply it's a more recent covenant so potentially more easy to enforce.

Comms69

anders170 wrote: »

The lender asked for a letter from a holiday let company who reckoned it would get a list of rates for different seasons, topping £25k a year.
My question now though is what can I do now? My solicitor is currently saying I have to take out an indemity policy, Im saying that isnt an option. I want to opt out of the purchase but I dont feel I should be the one to pick up the tab for this error, if the covenant had been spotted at the outset I would have walked away then, not after spending my life savings on commercial valuations and legal fees etc. They're saying if I pull out then I will have made that decision, and therefore still be responsible for the legal and brokers fees/loan arrangement fee etc

£25,000 a year? I've had a look just now at some very pleasant looking holiday lets, it was only 4 at random admittedly. Avg £450 a week - they were all available from today until March (except the two weeks around Christmas and new year)


I think someone was selling you up the river. But even if not.


Business rates alone at £25,000 would be £11,500 unless I've miscalculated.


Typically you are responsible for your own expenses, especially in commercial transactions

G_M

anders170 wrote: »

The lender asked for a letter from a holiday let company who reckoned it would get a list of rates for different seasons, topping £25k a year.

As part of the business plan you put together, as menioned by comms69, you need to do your own (serious!) research.

The holiday let company at this stage is simply encouraging you to buy, and then list with them. The £25K will be based on 52 weeks rental pa which you'll never achieve.

It will also be at inflated rents (to get you excited, and buy). After a few weeks/months with minimal bookings, you'll be dropping the price.

anders170

I already have one small holiday let which last year grossed £23k (90% bookings as it's in a very popular location with a sea view). I bought it as a wreck in 2015, renovated it a cost of £85,000 in loans which has/will absorbed any tax - and I am a lone parent/sole trader of a cleaning company. This one is double the size, but I was expecting a similar revenue to my current one as the bigger one is in a residential area 10 mins walk to the sea, with no nice views.
Ive just called a property negligence lawyer who was really helpful and said I should talk to the solicitor's negligence department first and see what they say and then proceed. Im just really disappointed with the solicitor. How could I have researched what was listed on some deeds. Even the seller didnt mention the restrictions when she was given her questionaire otherwise I would have flagged it up. When I spoke to her today, she still didnt know! Now she will have to put her house back to market.