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Selling a B&B (with a tenant)
ProDave
Posts: 3,785 Forumite
This one is a bit complicated.
Our former house was 5 bedrooms and we used to run it as a B&B. We tried to sell it a few years ago and the market was slow and we had little interest.
But somebody did want to buy it but was up against the problem they would be self employed and needed 2 years accounts to get a mortgage. So we agreed to let the property to them, on the understanding they intended to buy it.
At the time we talked to our solicitor about doing it as a commercial let, but he strongly advised us against that and on his advice it is let as a short assured tenancy but with the "no business use" clause removed.
It continues to be insured on a small hotel insurance policy, the insurers are aware we have a tenant, as far as they are concerned we have just installed a "manager" perfectly normal for a B&B / hotel.
All gas and electrical checks are up to date.
Originally we agreed to let it to them for 2 years before they bought it. That 2 years passed in April. Then they said they needed 3 years. NOW they are saying they need until the end of the 2020 tourist season.
The issue for us, is we need the capital. We are living in our part built new build (self build) house and unable to finish it completely without the proceeds from that sale.
There is also the issue of the changes to PRR and letting relief that means if we go beyond the end of this current financial year, it is more likely we will face a (at the moment small) capital gain tax bill on the sale.
We are going to have a chat with them soon, basically asking for a viable business plan to demonstrate they really will be able to afford to buy it. My fear is they want to buy it but don't have the means to do so and never will.
So we are minded to give them until October 2020 if they present a viable financial plan.
But I am exploring options about selling the property as a "plan B"
When we ran it as a B&B ourswlves it was more of a hobby, it was not advertised widely, it was not on any of the booking agency sites and occupancy was low. For that reason when we tried to sell it previously it was just on a normal estate agent as a normal house.
Now the present tenants have run it more seriously as a B&B it has a much higher turnover and occupancy, and is getting good ratings on a couple of booking sites. So if we end up putting it back on the market we are thinking of using a commercial agent that specialises in hotels and guest houses.
The question really comes down to what to do with the tenant if we re market it?
My inclination, if they agree is to market it with the tenants still in it, still running the business. That keeps the business "active" and removes any council tax or utility liability from us. Then the eventual buyer could keep them on as managers, of if they don't want to do that we would serve notice under the SA tenancy meaning a 2 month delay before the sale could complete with vacant possession.
I am guessing anyway we would have to end the SA tenancy on completion and the new owners enter into any separate agreement if they want to keep the present "managers" in place.
I will get my tin hat for all the horrible landlord replies.
Our former house was 5 bedrooms and we used to run it as a B&B. We tried to sell it a few years ago and the market was slow and we had little interest.
But somebody did want to buy it but was up against the problem they would be self employed and needed 2 years accounts to get a mortgage. So we agreed to let the property to them, on the understanding they intended to buy it.
At the time we talked to our solicitor about doing it as a commercial let, but he strongly advised us against that and on his advice it is let as a short assured tenancy but with the "no business use" clause removed.
It continues to be insured on a small hotel insurance policy, the insurers are aware we have a tenant, as far as they are concerned we have just installed a "manager" perfectly normal for a B&B / hotel.
All gas and electrical checks are up to date.
Originally we agreed to let it to them for 2 years before they bought it. That 2 years passed in April. Then they said they needed 3 years. NOW they are saying they need until the end of the 2020 tourist season.
The issue for us, is we need the capital. We are living in our part built new build (self build) house and unable to finish it completely without the proceeds from that sale.
There is also the issue of the changes to PRR and letting relief that means if we go beyond the end of this current financial year, it is more likely we will face a (at the moment small) capital gain tax bill on the sale.
We are going to have a chat with them soon, basically asking for a viable business plan to demonstrate they really will be able to afford to buy it. My fear is they want to buy it but don't have the means to do so and never will.
So we are minded to give them until October 2020 if they present a viable financial plan.
But I am exploring options about selling the property as a "plan B"
When we ran it as a B&B ourswlves it was more of a hobby, it was not advertised widely, it was not on any of the booking agency sites and occupancy was low. For that reason when we tried to sell it previously it was just on a normal estate agent as a normal house.
Now the present tenants have run it more seriously as a B&B it has a much higher turnover and occupancy, and is getting good ratings on a couple of booking sites. So if we end up putting it back on the market we are thinking of using a commercial agent that specialises in hotels and guest houses.
The question really comes down to what to do with the tenant if we re market it?
My inclination, if they agree is to market it with the tenants still in it, still running the business. That keeps the business "active" and removes any council tax or utility liability from us. Then the eventual buyer could keep them on as managers, of if they don't want to do that we would serve notice under the SA tenancy meaning a 2 month delay before the sale could complete with vacant possession.
I am guessing anyway we would have to end the SA tenancy on completion and the new owners enter into any separate agreement if they want to keep the present "managers" in place.
I will get my tin hat for all the horrible landlord replies.
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Comments
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What a minefield, I'd be surprised if you can proceed without removing the tenant first. I'd not risk hoping they'll move out in line with your completion - they could royally mess up your plans. I'd also be telling them you need to sell, it is not just about their needs, either they stump up or you will be forced to sell.0
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Assuming this is Scotland (sounds like it..) then
a) Are you registered as a landlord? If not possible fine up to £50k
b) Was AT5 served prior to SaT being signed? If not it ain't an SaT but an AT so nigh on impossible to evict unless rent seriously in arrears, and then takes ages... For you or any new owner.
c) etc etc etc etc etc.. sounds like a minefield
re
this is clearly not the case but needs proper landlord insurance and, should there be a problem with current insurance (eg it burns down, persons 'orribly maimed - I'm pointing out a risk, clearly everyone hopes this doesn;t happen) then insurance will be found invalid, no payout, no re-build costs plus likely sued for injuries. Bankruptcy likely.It continues to be insured on a small hotel insurance policy, the insurers are aware we have a tenant, as far as they are concerned we have just installed a "manager" perfectly normal for a B&B / hotel....
Suggest you get proper landlord insurance TODAY. For your own sake.
2 month delay? Even if it is an SaT then notice(s) need to expire on an ISH** (yes, correct spelling..) so expiry 2-3 months after service (Sheriff Officers recommended, cost about £70). But those notices do not end tenancy not compel tenant to leave: Expect several months more as you plough through the FTT: FTT chuck out many cases for flaky paperwork (no offence but that sounds highly possible)
Done any training in Scottish landlord/tenant law? LaS course are **FREE** for SaL members..
https://www.landlordaccreditationscotland.com/landlords/
https://scottishlandlords.com/
Slàinte mhath!
**NB How does tenancy state it continues after initial term or does it roll on by tacit relocation? May affect ISH date.0 -
So it's let on a normal AST, now a statutory periodic?
Whether you want to renew that tenancy on a fixed period to October 2020 is up to you, as is whether the rent is based on their turnover/profitability or a fixed amount or whatever. Entirely up to your negotiation.
Yes, of course you can try to sell it as a going business, based on the current tenant's management accounts. It would seem a tad harsh on the current tenant to base any selling price on their work if they're buying, though.
Do you have C1 use on the property, or is it just residential?0 -
Yes it is Scotland, AT5 signed before tenancy and yes we are registered landlords. I just knew someone would try to find a reason to tell us we can't.
And wanting the property back to sell it is a valid reason for ending a SA tenancy.
Selling it to someone else is a last resort if the present tenants cannot eventually buy it, I am just exploring options just now.
If they buy it then we serve notice to end the tenancy on completion day but of course they don't have to move out as they would then own it. They would just stop paying rent.
The present insurer is entirely happy with a tenant in the property running the business. Normal landlord insurance would not cover them running it as a B&B so would be stupid.
The tenant is up to date with rent and has always paid on time. The daft thing is to get a mortgage, the repayments would be not a lot more than they are paying in rent, it all must come down to deposit, and salary multiples that the lenders will give, not outright "affordability" You would think several years of paying that rent on time would be looked upon favourably by a lender?0 -
Thanks.
Selling is not a valid ground for eviction with AT or SaT. The new PRT does have that ground.
Insurer is I'm sure happy to take your money but I fear you are under an over-optimistic assumption they would pay out in the circumstances you & I describe.
I'm going through eviction of SaT now, s33 notice etc, to sell (old age). Suggest you engage a solicitor specialising in such matters eg T C Young0 -
This tenancy was started and signed (just) before the new current rules on SA tenancies came into force and ending to sell or if you want to go and live in the property yourself is definitely a valid reason to end the tenancy. The new rules have fewer reasons for ending a tenancy but wanting to sell is still one of them. The tenancy was drawn up by a proper letting agent not some DIY cobbled together exercise.
Yes if we do decide to go down the route of selling to other than the present tenant I will seek advice from the letting agent and solicitor how to do so correctly and legally and how to properly end the tenancy.0 -
Given that it is an SaT then landlord selling is afaik not a ground that can be used.This tenancy was started and signed (just) before the new current rules on SA tenancies came into force and ending to sell or if you want to go and live in the property yourself is definitely a valid reason to end the tenancy. The new rules have fewer reasons for ending a tenancy but wanting to sell is still one of them. ....
Other than SaT s33 notice route (no reason required…) the grounds for eviction for ATs or SaTs are as listed here..
https://scotland.shelter.org.uk/get_advice/advice_topics/eviction/eviction_of_private_tenants/grounds_for_eviction_-_assured_and_short_assured_tenants
& you will note there is no ground for selling the property listed.
This ground has come in for PRT, ground 1 – see
https://scotland.shelter.org.uk/get_advice/advice_topics/eviction/eviction_of_private_tenants/grounds_for_eviction_for_private_residential_tenancy_tenants
- but does NOT apply to SaTs or ATs.
Do please let us know if you still think there is one, which ground number for selling you will be relying on, please.
...
I admire your optimism over the abilities of your agent: I have had to at least three times with three different letting agents had to point out why their paperwork was wrong (and yes I know fine well I don’t know everything ….). This and other landlord/tenant renting sites have rather too many examples of agents not have a clue (very sadly..).....The tenancy was drawn up by a proper letting agent not some DIY cobbled together exercise.
Yes if we do decide to go down the route of selling to other than the present tenant I will seek advice from the letting agent and............
Strongly suggest you engage a solicitor specialising in landlord/tenant matters, but hey, free country, your choice!0 -
According to this, ground 1 is all I need to end the tenancy. It was my former home before I let it and it does not appear to matter what use I want to put it to once I have vacant possession.
https://scotland.shelter.org.uk/get_advice/advice_topics/eviction/eviction_of_private_tenants/grounds_for_eviction_-_assured_and_short_assured_tenants
Granted I would have to move back in for an unspecified time before I decided to sell it.0 -
The present insurer is entirely happy with a tenant in the property running the business.
Their business not yours though.as far as they are concerned we have just installed a "manager" perfectly normal for a B&B / hotel.
Material fact misdisclosure is likely to void the policy entirely.0 -
Thrugelmir wrote: »Their business not yours though.
Material fact misdisclosure is likely to void the policy entirely.
No we explained the situation accurately that we are letting the entire property to the tenant and the tenant is running the B&B business, and the insurer was happy to provide insurance knowing that to be the case.
I am not sure what you expect me to do because a standard landlords letting policy most certainly will not cover the B&B aspect and if a guest burned the house down they would say you are not covered. At least with the hotel policy we have there is absolutely no doubt that is covered,.0
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