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Request from Tenant to enter into a lease to buy arrangement - any advice

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  • 04-03-2015 2:17pm
    #1
    dialemma
    Registered Users Posts: 48 ✭


    Hi, looking for advice or insight. We have had a request from our tenant to enter into a lease to buy arrangement with him. We had initially planned on leasing our property to the council with a buy clause but when we advised the tenant of this they expressed an interest in buying the property themselves but on a lease to buy arrangement as they currently don't have sufficient savings to secure the mortgage. Also our property is currently in negative equity so we don't want to sell this year which is why we were considering the council option of lease with buy clause after 10 years. Has anyone any advice, or has anyone every been involved in such an agreement and where is the first place to start? and what are the major consideration which I might be overlooking. Also if the rent they pay say for the next two years goes towards their deposit and is deducted from the final sale price how is the tax of this dealt with?


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    #2
    The_Morrigan
    Moderators Posts: 9,368 ✭✭✭The_Morrigan


    You really need to engage the services of a solr and a tax adviser to deal with this query. This is not something that is commonly done on a personal level - developers have done it on a large scale and in a commercial capacity in the past.

    Also, to note that professional advice is not permitted here, so any answers that fall within the remit of the forum will be personal opinions/preferences on your situation, it's not going to provide you with any ease of mind or clarity on the situation.

    /Mod


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    #3
    dialemma
    Registered Users Posts: 48 ✭dialemma


    Morrigan

    Thank-you, I am aware that professional advise is nor permitted and I was not looking for such, just searching for anyone who may have experience of being in a similar situation and their experience of the same, also though may not provide clarity others may have opinions which I have not considered that will ultimately help us form a plan of action regarding next steps. Will be employing a solicitor if we decide to proceed and already engage a tax adviser to complete our yearly accounts so can liaise with him if and when it comes to that point.


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    #4
    The_Morrigan
    Moderators Posts: 9,368 ✭✭✭The_Morrigan


    dialemma wrote: »
    Morrigan

    Thank-you, I am aware that professional advise is nor permitted and I was not looking for such, just searching for anyone who may have experience of being in a similar situation and their experience of the same, also though may not provide clarity others may have opinions which I have not considered that will ultimately help us form a plan of action regarding next steps. Will be employing a solicitor if we decide to proceed and already engage a tax adviser to complete our yearly accounts so can liaise with him if and when it comes to that point.

    You might want to ask your tax adviser this
    Also if the rent they pay say for the next two years goes towards their deposit and is deducted from the final sale price how is the tax of this dealt with?

    It won't be answered here.


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    #5
    johnnyskeleton
    Moderators, Entertainment Moderators, Politics Moderators Posts: 14,479 Mod ✭✭✭✭johnnyskeleton


    I'm not sure that the tenant would get a mortgage either unless the whole scheme was approved in advance by the bank (can't see that happening).

    Basically, the bank will lend to someone who can show that they have saved up a deposit themselves while also paying an amount equivalent to the mortgage payment as rent. They can lend in other circumstances, but they are very conservative at the moment.

    Also, banks don't give 2 year mortgage approvals.

    So as a purely practical consideration, you could end up in 2 years time and the tenant can't buy the property after all.


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    #6
    dialemma
    Registered Users Posts: 48 ✭dialemma


    Thanks Jonnyskeleton

    The idea is that in a case where the tenant can't buy after say two years then the rent that they have paid is lost to them, if they do secure a mortgage for the pre-agreed asking price then the rent they pay for the next two years goes off the asking price.


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    #7
    witchgirl26
    Registered Users Posts: 2,091 ✭✭✭witchgirl26


    Not been in this situation but learnt a lot about rent to buys previously and one thing that came up time and again is how many banks won't recognise the rent paid as a deposit and would require a deposit still from the buyers. That was even in relation to develop run schemes.
    Not legal advice at all but if I was in your shoes & the tenants really wanted to buy and were saving etc, I would consider reaching an arrangement with them to continue to rent and to revisit the purchasing issue in a years time or something so that they could save the requisite deposit.


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    #8
    MouseTail
    Registered Users Posts: 1,663 ✭✭✭MouseTail


    Have you agreed what the selling price will be? If it is at Today's prices, and you are in NE, I can see no benefit in this arrangement to you. You are effectively writing off 2 years rent, and any capital appreciation that may occur over the next two years.


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    #9
    dialemma
    Registered Users Posts: 48 ✭dialemma


    Hello Mousetail

    No we have not agreed anything at all at this point, but you are correct the only way it could be of any value is if we were to agree a higher price and the two year lead time is simply an opportunity for the tenant to raise the deposit required and to have their rent currently being paid counted as a contribution towards the final cost so it is not 'wasted rent' for them IYKWIM


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    #10
    the_syco
    Registered Users Posts: 37,295 ✭✭✭✭the_syco


    If they bring the deposit to the bank, and the bank doesn't accept it, who then has the deposit?


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    #11
    Graham
    Moderators, Society & Culture Moderators Posts: 17,642 Mod ✭✭✭✭Graham


    dialemma wrote: »
    Hello Mousetail

    No we have not agreed anything at all at this point, but you are correct the only way it could be of any value is if we were to agree a higher price and the two year lead time is simply an opportunity for the tenant to raise the deposit required and to have their rent currently being paid counted as a contribution towards the final cost so it is not 'wasted rent' for them IYKWIM

    What's the benefit to you of offering a lease to buy option to anyone?

    If property prices increase you won't see any of the additional value.
    If property prices decrease the tenant won't exercise the option.
    Assuming the purchase is completed, you loose the value (equivalent 2 years rent) that would have otherwise been paid against the outstanding mortgage upon completion of the sale.


    To add: a family member entered a lease to buy arrangement 3 years ago. The banks refuse to consider any proportion of the rent as a deposit and consider the rent-paid adjusted balance to be the value of the house.

    E.g. house €200,000, rent paid €36,000 balance €164,000. Bank will loan loan 80% of €164,000.


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