Buying a house - vendor wants to lease back - what are the risks

Jane98

Hi,

I'm in the process of buying a house and vendor has suddenly told us he needs to stay there for 6 months so wants to lease it back from us for 6 months.

Now, on first thought that isn't a huge issue for us as we want to renovate and extend the house so it will probably take us about 6 months to get plans drawn up, get planning permission and get tender submissions for the building work involved but I am wondering is there any reason why I should be cautious here?

How can I guarantee (if at all) that they pay the rent and move out at the end of the 6 months?

3DataModem

Jane98 wrote: »

Hi,

I'm in the process of buying a house and vendor has suddenly told us he needs to stay there for 6 months so wants to lease it back from us for 6 months.

Now, on first thought that isn't a huge issue for us as we want to renovate and extend the house so it will probably take us about 6 months to get plans drawn up, get planning permission and get tender submissions for the building work involved but I am wondering is there any reason why I should be cautious here?

How can I guarantee (if at all) that they pay the rent and move out at the end of the 6 months?

While this sounds like a great situation, it has risks. I'd probably say no.

You can only guarantee they pay rent by getting it all up front (they have the money). There is no way at all of guaranteeing they leave at end of 6 months.

Wabbit Ears

and of course after 6 months its way harder to evict....settle on 4 months at twice what the standard local rent is.

djimi

Just be aware that if they decide that they don't want to leave after 6 months then it's a long drawn out affair to secure a legal eviction that could take over a year, and you have to play it absolutely by the book. I'd be very sure about how much I trust these people before agreeing to this.

djimi

Wabbit Ears wrote: »

and of course after 6 months its way harder to evict....settle on 4 months at twice what the standard local rent is.

Assuming the OP intends to move into the house then it's not an issue if it runs over into a part 4 tenancy. Just means a slightly longer notice period.

Marcusm

Realistically, this would be better organised as a sale with an extended completion rather a completion with a rental period. This would avoid the issue of you owning a hosue with them unwilling to move at a later date. Additionally, I would be surprised if your mortgage lender was willing to lend where you were not being offered vacant possession and, if the solicitor was aware, they would not be able to complete the docs for a standard mortgage drawdown.

Jane98

djimi wrote: »

Just be aware that if they decide that they don't want to leave after 6 months then it's a long drawn out affair to secure a legal eviction that could take over a year, and you have to play it absolutely by the book. I'd be very sure about how much I trust these people before agreeing to this.

Thanks djimi. I definitely don't trust the vendors so will prob look at extending the close date and maybe offer them a lease just under the 6 months.

If they then decide not to vacate the property what are my options to get them out?. We do intend to live in the property, after first renovating and extending it.

sunnysoutheast

Jane98 wrote: »

Thanks djimi. I definitely don't trust the vendors so will prob look at extending the close date and maybe offer them a lease just under the 6 months.

If they then decide not to vacate the property what are my options to get them out?. We do intend to live in the property, after first renovating and extending it.

Your options are to issue a valid Notice of Termination and, should the tenants decide to ignore it and overhold, take a case with the PRTB for non-compliance. This will take months. You will no doubt get replies suggesting changing locks etc, which is illegal.

Additionally, should you become the previous owner's landlord, you will then be responsible for repairs, tax returns, PRTB registration, etc. Sounds like you've not been a landlord before? You should be aware it's a right barrel of laughs some of the time.

I am struggling to think of a reason why anybody would agree to it, unless it was a trusted family member or similar. Why not just agree to buy it when they finally move and leave the money in the bank for now? Not sure whether you can still apply for PP etc. should you want to get that process going.

Muahahaha

OP the vendors sound like messers to me- if they weren't ready to move out of the house when it sold then why did they even put it up for sale. Even the fact they are mentioning this 6 month rental period only now, I.e. After you've committed to purchasing the house, and not before, makes me suspicious of their intent to remain there.
Why can't they just rent somewhere else locally for 6 months ? Even though you say the 6 month period could actually suit you I'd still stay well clear of their proposed arrangement. They weren't honest and upfront with you from day one so what makes you think that they will be on day 180 ?

djimi

Jane98 wrote: »

Thanks djimi. I definitely don't trust the vendors so will prob look at extending the close date and maybe offer them a lease just under the 6 months.

If they then decide not to vacate the property what are my options to get them out?. We do intend to live in the property, after first renovating and extending it.

The length of the lease means nothing (it would be in your best interest to not have a lease at all); if they decide they want to stay then there isnt much that you can do bar go through the PRTB and wait for a judgement from them which can then be enforced through the courts. Whole process could take a year or more.

To be honest, I dont really think that this is something that you want to be considering. Being a landlord means that you have obligations; do you want to be replacing their washing machine for example if it breaks? Its not worth the hassle.

foggy_lad

Op if you were to move into the house then rent a room to the previous owner they would be a licensee rather than a tenant abd you could put them out on the street in 24 hours if required.

Marcusm

I think there's a lack of clarity here; if the OP in his/her words, extends the closing of the purchase then there is no lease or tenancy and nothing for the PRTB to get involved in. Rather there is an obligation ont he vendor to complete the sale and on the purchaser to pay the balance (usually 90%) of the purchase price. If either fails, there is a well established legal procedure to seek to enforce the contract which if either party fails to complete, the contract for sale is rescinded. In the event that the vendor fails to complete, he will need to return the deposit together with compensation for any change in value of the property. IN such circumstnces, the relationship of landlord/tenant would never have subsisted and it is not a matter of obtaining an eviction. Specific performance, to my knowledge, is almost never obtained in respect of a contract for the sale of land in Ireland.

QuiteInterestin

As well as what has been said already, I think renting can also affect your mortgage rate/conditions as your mortgage is probably based on you living there, not as a buy to let (Not sure about this as have never been a landlord but maybe something to check out). Wouldn't entertain them, better to be without 6 months rent then the hassle of being a landlord for 6 months and all the obligations that go with it and trying to get them to leave, especially if they don't want to.

Jane98

I guess we're in a bit of a catch 22 situ. If we extend the closing date to June then if the vendors decide to pull out then we have lost a lot of time, effort and money spent on professionals, obtaining planning permission and decision making around how we wish to change the house.

On the other hand if we buy now and let them lease back, it could get very messy if they don't pay the rent or leave when they say they will.

The vendor says they wish to stay until June to give their child some stability while they finish their leaving cert but personally I think they would be able to rent somewhere similar in the locality without too much hassle.

L1011

Your mortgage approval is likely based on it being owner occupied, not investment - and this will be classed as investment regardless of how soon you intend to get them to leave. Check that EXTREMELY carefully.

I'd also echo the warnings about them trying to stay indefinitely and finding yourself needing to evict with all its legal processes and delays.

djimi

Jane98 wrote: »

The vendor says they wish to stay until June to give their child some stability while they finish their leaving cert but personally I think they would be able to rent somewhere similar in the locality without too much hassle.

In fairness if they are not prepared to sell then walk away and stop letting them waste your time. Id be livid if that was me; I thought they had a genuine reason for wanting to stay (ie something fell through for them) but because their kid is doing their leaving cert? Why on earth did they start the selling process to begin with if they werent prepared to sell when a buyer came along? Bloody idiots.

Walk away and go find someone with more cop on to deal with who wont mess you around.

Marcusm

Jane98 wrote: »

I guess we're in a bit of a catch 22 situ. If we extend the closing date to June then if the vendors decide to pull out then we have lost a lot of time, effort and money spent on professionals, obtaining planning permission and decision making around how we wish to change the house.

On the other hand if we buy now and let them lease back, it could get very messy if they don't pay the rent or leave when they say they will.

The vendor says they wish to stay until June to give their child some stability while they finish their leaving cert but personally I think they would be able to rent somewhere similar in the locality without too much hassle.

You need to decide what you want; if, realistically, it suits you to have a 6 month period to arrange a substantial building project (incl pp) then it sounds as if you and the vendors are well matched. I don't agree with those posters who have stated that they are messers. I don't know what part of the country the property is in but 3 months between going on the market and completion would be speedy anywhere. 6 months would be more common.

You need to speak with a solicitor but it's not simply a matter that they can choose not to complete, they would become liable for your costs which, in the contemplated context, could be very substantial re architects, engineers, planning consultants etc.

If you genuinely don't plan to occupy the property until after 9 months, why worry now.

Muahahaha

It was me who said they were messers and I stand by that as they approached a very large financial transaction and they weren't upfront and honest about how they wanted to proceed as regards handing the house over. The sign outside said 'For Sale', it never said For sale now, move inside in 6 months'. They knew about the Leaving Cert a long time ago so this is not a hard luck story where their own purchase fell through. They're messers because now when the deal is near complete they are looking to move the goalposts- in any negotiation and especially in one where the value is in the hundreds of thousands of euro moving the goalposts at late notice is messing in my book and I'm sure many other property buyers would concur.

Personally I'd walk away. But the OP may be invested emotionally in the house and want it above all else. In that case a way to deal with this legally is that you complete the contracts now as normal and then get you solicitor to draw up a separate rental contract. Part of that contract is two stipulations-
1) 100% of the rent is paid up front and in full
2) a bond of €20,000 is paid to your solicitor and held in his client account in escrow. In the event of them not vacating by X date that bond of €20,000 reverts to you. This clause serves two purposes- it ensures they don't get up to any funny business when it's time to vacate and also it ensures that if they do decide to foot drag then you now have a €20k war chest to take them through the eviction process.


That's the only way I'd be doing such a deal, I smell a rat here as a result of their untrustworthy actions during what was supposed to be a transparent deal. If they're not willing to stump up that €20k (and given you know they have it) then that would be the final signal that their intentions are not honourable.

djimi

They basically want the best of both worlds; they want to sell but move when it suits them. Either they are trying to sell or they aren't. At the moment they are basically just taking the piss.

Jane98

Muahahaha wrote: »

Personally I'd walk away. But the OP may be invested emotionally in the house and want it above all else. In that case a way to deal with this legally is that you complete the contracts now as normal and then get you solicitor to draw up a separate rental contract. Part of that contract is two stipulations-
1) 100% of the rent is paid up front and in full
2) a bond of €20,000 is paid to your solicitor and held in his client account in escrow. In the event of them not vacating by X date that bond of €20,000 reverts to you. This clause serves two purposes- it ensures they don't get up to any funny business when it's time to vacate and also it ensures that if they do decide to foot drag then you now have a €20k war chest to take them through the eviction process.

Thank Muahahaha. This sounds like a great solution which would surely guarantee we couldn't get screwed but I'm wondering is it something which is legally enforceable and if so would it be used commonly in sales of this kind?

pwurple

We were in a similar situation years ago with the purchase of our home. The vendors wanted to delay the sale by six months... In order to find someplace else. They first put out the idea of leasing it from us, but we refused, as our mortgage approval was for owner occupied.

We were in a rented house ourselves at the time, so we negotiated a reduction in sale price. The amount was the equivalent of six months rent and storage for us. Took x-thousand off the purchase price, agreed closing date in the future and signed contracts on that basis.

Muahahaha

Jane98 wrote: »

Thank Muahahaha. This sounds like a great solution which would surely guarantee we couldn't get screwed but I'm wondering is it something which is legally enforceable and if so would it be used commonly in sales of this kind?

Well I would say situations like your own would be far from common. But a contract is a legally enforceable document so provided it is well drafted by a solicitor then yes it would be legally enforceable. You just need to make sure that the contract states in clear and defined terms that if they don't move out by X date then the bond automatically reverts to you. Having the bond in escrow gives you the reassurance that the money is there. Your solicitor would need to look at other scenarios such as what would happen if the house went on fire, flood damage, etc during their tenure but that aside what I've outlined should be perfectly doable and within the law.