Selling to a buy-to-let purchaser and becoming a tenant and renting the house after completion

DMilly666

Hi,
We are in the process of selling our home to a buy-to-let purchaser who understandably wants the sale completed by 31st March 2021 to benefit from not having to pay stamp duty. Our new build home which we are hoping to move to is not due to be completed until end of July/early August, so we have asked our purchaser if upon completion of the sale of our house, we could stay put and rent it under a formal 6-month tenancy agreement (we are due our second child in February so really not keen on the upheaval of moving to another rental property towards the end of March and then having to move again to the new house once it is finished). Our purchaser was initially happy for us to do this (and would mean they would get a guaranteed 6-month rental income straight away) but they have subsequently come back and said this would constitute a 'sale and rent back' agreement so can't be done. I have looked into 'sale and rent back' agreements and they appear to be for people selling die to financial difficulty (not us as we are selling to purchase a significantly more expensive house) and selling under market value (which we haven't done as is demonstrated by the estate agent valuation and the buy-to-let mortgage valuation), and we are not asking for a minimum 5 year tenancy term which must be provided  by the landlord in a 'sale and rent back' agreement. We not looking to enter into any such agreement, just simply renting our old house under a standard 6-month tenancy agreement like any other tenant would.

Can anyone shed any light on if our purchaser may have got the wrong end of the stick in terms of a 'sale and rent back' agreement being applicable in our case, or if their mortgage lender or solicitor may have raised this as an issue?

Many thanks in advance! 

davidmcn

No, I think they are correct in saying that such arrangements are regulated.

Slithery

They are correct. Any sort of sale and rent back scheme is prohibited without FSA registration, and it's been years since the FSA closed registration so it's now lapsed for anyone that did have it.

AdrianC

No, they are absolutely bob-on.
Selling a house then renting it back from the buyer (or, rather, buying then letting it to the vendor) is absolutely what's covered by "sale and rent back". There's a clue in the name...

Annisele

The OP is right that the purpose of the sale and rent back regulations is to prevent the exploitation of people in financial difficulty. But the rules themselves cover the OP's situation precisely. They're complex, but one place to start might be the glossary to the FCA Handbook.

It sounds as though your purchaser needs a mortgage, so they absolutely can't agree to the six month tenancy you want. If they didn't need a mortgage, then they could - unlawfully, and entirely at their own risk - choose to breach the regulations in the hope you wouldn't do anything about it and nobody would find out. But with a mortgage, not happening unless the purchaser lies to the lender and commits mortgage fraud in addition to the offences they'd rack up entering into the sale and rent back.

I strongly suspect your purchaser was perfectly happy with the idea until they found out what it would mean - and then they quite understandably lost all enthusiasm for the idea.

If your new build isn't going to be ready until August, you might have to resign yourselves to losing this buyer. They have good reasons for wanting to complete before April, you have good reasons for wanting to delay until July/August, and that seems to me like a legitimate dealbreaker. I'm sorry; that sucks.

DMilly666

Thanks to all who have commented and the comments have been most useful... very much now resigned to the fact that either we bite the bullet and keep out current buy-to-let buyer and deal with the hassle of having to move into a rental place until our new build is ready, then move again... or drop our current buyer and look for another buyer, which will inevitably mean the new build we want will go back on the market and will probably sell pretty quick (as it is the last one of this property type on the development and has sold quickly a couple of times before) ..... it is just highly annoying that having lived in our house for the last 8 years and starting our family here we would undoubtedly looked after it impeccably as tenants as if it were still our own home and would sign up to a guaranteed 6 month contract.

I suppose if our buyer was willing to hang on until July/August we could always offer to pay the cost of the stamp duty our buyer would have to pay (if that is allowed in some form?), but that would probably mean they would have to reapply for their buy-to-let mortgage to extend to that time period, which I very much doubt they would be willing to do.

Perhaps with the uncertainty of COVID at the moment perhaps it might just be a sign to stay put where we are for now and think about moving again a little later in the year when there might be more certainty about the future!

Grumpy_chap

Has the date for the new build moved at any time and been delayed?
The developer may have a solution if you ask.

DMilly666

Grumpy_chap said:

Has the date for the new build moved at any time and been delayed?
The developer may have a solution if you ask.

Hi,
No, there has been no delay, we initially asked if the developer would take ours in part exchange so we wouldn't have the potential issue of a buyer of our house not wanting to wait 6-7 months, but they said no as it is a very popular development with only a couple of properties left to sell. May just ask again as a last resort but very much doubt they will go for it. 

getmore4less

How much does the buyer end up paying if they don't complete by march

How much is it worth to you to avoid the hassle of moving twice. 

Could you cover the cost and loss of profits by delayed completion till the new build is ready, you would want a complete on demand clause similar to the new build contract. 

DMilly666

getmore4less said:

How much does the buyer end up paying if they don't complete by march

How much is it worth to you to avoid the hassle of moving twice. 

Could you cover the cost and loss of profits by delayed completion till the new build is ready, you would want a complete on demand clause similar to the new build contract. 

The difference in stamp duty would be just over £3k if completed towards end of July rather than before 31st March, so we have offered to cover this difference if our buyer was willing to wait. Our house would probably rent out for around £1,200 a month so I don't think financially we can consider covering this monthly loss of rental income profit to our buy-to-let purchaser as this could total around £4-5k by the time our new build is due to be completed, especially with our current monthly mortgage payments which would also need to be made during that time.  Will see what our buyer says to being offered the £3k and waiting, but I suspect it will be a thanks but no thanks! 

getmore4less

The loss of profits won't be the full rent.