The tenant-landlord relationship can be tricky and one of the most contentious flashpoints is often when a landlord decides to sell the property before the renter is ready to move on.
Much has been made of the rights of tenants to feel secure in a place they can call home, so choosing to dispose of an asset often meets with disdain from some quarters of the housing industry.
But what if the landlord gives first refusal to the tenant, inviting them to buy the property before it goes on the open market? It’s not a new idea and it may have become more popular if the Conservative party had retained power.
One of its manifesto ideas was to scrap capital gains tax payable by landlords who sold to their tenants, with the tax holiday lasting for two years. The initiative was proposed in order to help more first-time buyers secure a suitable starter home. As yet, such a proposal has yet to be floated by Labour.
In fact, the reverse could be true. It is widely believed Labour will use a capital gains tax increase to plug a reported £22 billion black hole in Government finances, with higher rates that are in line with income tax brackets. An announcement on capital gains tax is due in the autumn Budget but landlords should assume the clock is ticking if they want to avoid paying more tax when offloading a buy-to-let.
While selling to a tenant privately sounds like a simple, straightforward way to exit the buy-to-let market, here are seven considerations before you start a conversation:
- They may not want to pay the market value: many tenants will realise a direct sale by a landlord to a tenant will avoid the seller paying estate agency fees. Others may feel they’re offering the landlord an easy sale and feel they're entitled to pay less for the convenience. As such, the tenant may want the landlord to take these factors into account when setting the asking price.
- ou may miss out on a better offer: linking to the above point, choosing to sell directly to a tenant shuts the door on other offers. Not only may a better offer be higher, a different buyer may be in a better position to proceed with a purchase.
- They may use the property’s condition against you: the tenant will probably know the condition of the property better than the landlord. They may use this as a bargaining tool to chip away at the asking price, especially after a survey. Alternatively, the tenant may demand that repairs are made before they proceed with a purchase, at a cost to the landlord.
- They may ask to keep the purchase informal and bypass an estate agent: while it may be tempting to simply each appoint a solicitor and save on agency fees, the lack of property professionals overseeing the deal could backfire. An agent and/or sales progressor will protect the interest of the seller and ensure compliance is achieved.
- They may not get a mortgage: even renters who passed referencing at the start of the tenancy may not pass the mortgage application process as a different set of criteria applies. Potential purchasers are usually financially qualified by the estate agent or a financial adviser, with the requirement to provide evidence of a deposit and a mortgage agreement in principle. This step can easily be overlooked if the sale happens without a professional framework.
- The sale may collapse and you’ll be punished: wanting to buy a property and actually having the means to do so are two different things. If the sale to a tenant collapses, you will end up with one of two scenarios: no tenant if the tenancy agreement was terminated before the sale or a disgruntled tenant who wishes to remain in the property. The latter could lead to an uncomfortable future if the failed sale ended acrimoniously.
- You may need to pay off a letting agent: landlords who sell to a tenant will need to carefully check any agreement they signed. Some small print dictates that a private sale by a landlord to a tenant incurs a fee, even if the agent didn’t help broker the sale. This could be a percentage of the sale price, typically between 1% to 2%.
An alternative to a private sale to a tenant is selling to cash house buyers. For example, Open Property Group offers the same simplicity as selling directly to a tenant but with more assurances and the highest degree of professionalism.
Advantages when selling to Open Property Group include:
- No estate agent required - no agency fees to pay
- Sell house fast – exchange and completion possible within 6 weeks to beat any increase to capital gains tax
- Cash buyer with immediate funds - can proceed with certainty, without a mortgage
- Sell with tenants in situ – no need to evict or wait for a fixed-term to end
- Bought ‘as seen’ – no need to redecorate or repair, and no need for viewings
- Professionals overseeing the sale – Open Property Group is a member of The National Association of Property Buyers and The Property Ombudsman
Request your online cash offer now, or contact Open Property Group to discuss the sale of a buy-to-let property or investment portfolio.
