Buying to let? Some issues you may wish to consider

Property is great whether you’re looking for a steady supplement to your retirement income or a secure financial future. Most buy-to-let landlords want to become financially independent, and property is a proven investment strategy for achieving that goal. But after you sign your name on the dotted line and officially enter the world of owning rental property, you face some tough decisions. One of the very first concerns is who will handle the day-to-day management of your rental property. You have properties to let, rents to collect, tenant complaints to respond to and a whole host of property management issues to deal with. So you need to determine whether you have what it takes to manage your own buy-to-let property or whether you should employ a managing agent.

A great advantage to building wealth through property is the ability to use other people’s money – both for the initial purchase of the rental property and for the ongoing expenses. Although the availability of buy-to-let mortgages has suffered since the downturn, more lenders are re-entering this market, so choice is increasing all the time. You will need to raise a deposit and then borrow the rest of the money from a mortgage lender.

The deposit required for a buy-to-let mortgage tends to be higher than that needed for a residential mortgage, and is significantly higher since the downturn. Expect to pay at least 25 to 30 per cent of the purchase price for the best rates, although some lenders request as little as 15 per cent.

The ability to control significant property assets with only a relatively modest cash investment is one of the best reasons to invest in bricks and mortar. For example, you may have purchased a £100,000 buy-to-let property with a £20,000 cash deposit and a mortgage for the remaining £80,000. If the property’s value doubles in the next decade and you sell it for £200,000, you will have turned your £20,000 cash investment into a £100,000 profit. This is an example of capital appreciation, where you are able to earn a return not only on your cash investment but also on the entire value of the property.

Rental property also offers you the opportunity to pay off your mortgage using your tenant’s money. If you’ve been prudent in purchasing a well-located rental property in a stable area, you’ll have enough income to pay the interest on your mortgage, as well as all the expenses, maintenance and insurance.

Over time, your property should appreciate in value while your tenant is essentially paying all your expenses, including the interest on your mortgage.

Your lender and tenant aren’t the only ones who can help you with the purchase of your rental investment property. Even the government is willing to offer its money to help your cash flow and encourage more people to become landlords. In calculating your income tax obligations each year, the government allows buy-to-let landlords to offset their rental income against interest payments on their mortgage and certain expenses. For example, you can claim 10 per cent of the annual rent for wear and tear on fixtures and fittings in furnished properties.

Over time, rental income generally outstrips operating expenses. And after your tenants have finished paying your mortgage for you, you’ll suddenly find that you have a positive cash flow – in other words, you’re making a profit.

One of the first steps in determining whether to completely self-manage your rental property or delegate some or all of the duties to other people is to analyse your own skills and experience. Many very successful property owners find that they’re better suited to deal-making, so they leave the day-to-day management for someone else. This decision is a personal one, but you can make it more easily by thinking about some of the specifics of managing property. Property management requires basic skills, including marketing, accounting and people skills. You don’t need a university degree or a lot of experience to get started, and you’re sure to pick up all kinds of ideas on how to do things better along the way.

If you’re impatient or easily manipulated, you aren’t suited to being a property manager. Conveying a professional demeanour to your tenants is important. You want them to see you as someone who will take responsibility for the condition of the property. You must also insist that tenants live up to their part of the deal, pay their rent regularly and refrain from causing unreasonable damage to your property.

Good management leads to good financial results. Having tenants who pay on time, stay for several years and treat the property and their neighbours with respect is the key to profitable property management. But, like most things, it’s easier said than done. One of the greatest deterrents to financial independence through investing in rental property is the fear of management and dealing with tenants.

If you choose the wrong tenant or fail to address certain maintenance issues, your buy-to-let investment may turn into a costly nightmare. By doing your homework in advance, you can reduce those beginners’ mistakes. Experience is a great teacher – if you can afford the lessons. If you already own your own home, then you already have some basic knowledge about the ins and outs of owning and maintaining property. The question then becomes how to translate that knowledge into managing rental property.

As a landlord, you may choose to handle many responsibilities while delegating some of them to others. Look at your own set of skills to determine which items you should delegate. A contractor may be able to handle the maintenance of your rental property and garden more efficiently and effectively than you can.

The skills you need to successfully manage your own rental properties are different from the skills you need to handle your own property maintenance. Most buy-to-let landlords find that using trusted and reasonably priced contractors can be a valuable option in the long run.

Ultimately, you can delegate all the management activities to a professional managing agent. But hiring a managing agent doesn’t mean you’re off the hook. Depending on the arrangement you have with your agent, you may still oversee the big picture. Most agents need and seek the input of the property owner before they start so that they can develop a property management plan that meets the owner’s investment goals.

Keep in mind that no one else will ever manage your rental property like you will. After all, you’re more motivated than anyone else to watch out for your buy-to-let investment interests. Only you will work through the night painting your property for the new tenant moving in the next day. And who else would spend his annual leave looking through the local newspaper classifieds for creative ad ideas?

You may find that a managing agent can run the property more competently than you can. Many buy-to-let landlords possess the necessary skills and personality to efficiently and effectively manage their rental properties, but they have other skills or interests that are more financially rewarding or enjoyable. Hiring professionals and supervising them is often the best possible option.

Considering property management? Hone your people skills first

Real estate is a great source of income, whether you’re looking for steady, supplemental retirement income or a secure financial future. Most residential rental property owners want to become financially independent, and real estate is a proven investment strategy for achieving that goal. But after you sign your name on the dotted line and officially enter the world of rental property ownership, you face some tough decisions.

One of the very first concerns is who handles the day-to-day management of your rental property. You have units to lease, rents to collect, tenant complaints to respond to, and a whole host of property management issues to deal with. So you need to determine whether you have what it takes to manage your own rental property or whether you should hire and oversee a professional property management firm.

Owning investment real estate and managing rental units are two separate functions, and although nearly everyone can invest in real estate, managing it takes time, special skills, and the right personality. The importance of relationships with people cannot be neglected because property management is really people management? There are advantages of owning rental property and you should assess whether you have what it takes to manage your own property.

Some rental property owners find themselves managing their own properties without even knowing what management requires. Managing the physical aspects of your properties (the buildings) and keeping track of your income and expenses are fairly straightforward tasks. However, many rental property owners’ most difficult lesson is the management of people.

Rental management requires you to deal with many more people than you may think. In addition to your tenants, you interact with rental prospects, contractors, suppliers, neighbours, and government employees. People, not the property, create most rental management problems. An unpredictable aspect always exists in any relationship with people. As with most businesses, the ability to work with people is one of the most important skills in being a successful property manager. If you enjoy interacting with people and are adept at working with them, you’re off to a good start toward becoming a prosperous property manager.

Documenting Rights of Way

If you are buying a residential property, it usually seems straightforward enough. Check out the length of the lease or freehold, and other things like ground rent, and leave the rest in the hands of your conveyancer. Of course, if you are one of the growing many who are increasingly managing their own conveyancing, then yes, there are a few more things to look into. It is difficult with doing it the first time of course, as there are the normal uncertainties associated with learning something for the first time, but once you have done it there is the confidence and pride in knowing you’ll be saving yourself some money in solicitor fees, and a whole lot of time expense, in that you won’t have to be ringing you conveyancer for status reports because you are now the conveyancer!

 

Some may argue that the majority of decisions involving property purchases are all done before looking at the property itself. Questions like “Which area is it in?”, the council tax, parking restrictions if any, are the kind of questions that precede a purchase and which may even influence the decision to arrange a viewing in the first place. Some buyers, for example, would discount a property on the basis of the lack of off-street parking – which is fair enough. If you are considering about  purchasing a property on a busy road and learn that you would have to park your beloved car three streets’ and five minutes’ walk away the parking would make a difference enough for you to look into another property.

 

For some, off-street parking really makes a difference. Who would risk a precious car out on the road, or on another road out of vantage point? The availability of off-street parking in big cities also means the lack of a need to monitor parking restrictions in the area because you would be parking on your own land.

 

The property ombudsman was recently called to investigate a complaint against one of its member agents by a buyer who claimed to have been mis-sold a property by them.

 

The buyer had bought a property with vehicular access to the rear, adjoining two other properties he already owned. These latter two properties did not have parking facilities. Essentially it can be assumed that the buyer had bought the property with the intention to link all three together with parking facilities.

 

The issue did not revolve around the properties themselves, but rather the access to them, which the previous seller had assumed was via a common road; hence the buyer was somewhat surprised, perhaps slightly taken aback, to be informed that the road was actually part of a neighbour’s property and he did not have right of way over it.

 

The buyer raised the issue with the ombudsman because he felt that the estate agent had misrepresented the property.

 

The ombudsman’s investigation found that the estate agent had taken reasonable steps to ensure that the description of the property was accurate. The seller had assured the agent that the sales descriptions were accurate, and assured the agent about the access, so while the buyer ended up with a property which he, in all likelihood, would have to arrange access arrangements, it was not through any negligence on the part of the estate agent.

 

The scope of the ombudsman investigation did not extend to the seller himself, but only within the remit of whether the estate agent had been in any way at fault. Having gone through the company file the ombudsman was satisfied in the decision not to uphold the claim by the buyer.

 

Access to the property is a matter that the buyer should have raised with their solicitor in order to request documentary evidence before exchanging contracts.

 

A lesson to also take away is that if there are any grey areas where further investigation is needed, the details should not form part of the sales particulars until confirmed. In this area the ombudsman did not find against the estate agents because they had acted in good faith with assurances from the seller.

 

Also another lesson to take away: While in this case neither buyer or seller were doing their own conveyancing, if you are ever thinking of going down that route in the future, make sure to examine all areas carefully. The seller had been going up and down that road for forty years and had assumed a public right of way. Never assume anything!

 

Conduct due diligence before buying by auction

Buying a property by auction is a method that seemingly circumvents the long drawn out process of submitting multiple offers for a property, then waiting for the estate agents to get in touch with the sellers before returning with a counter proposal. Ever bought a property the common way before? You ring up various estate agents to be on their books, scour property websites, book an appointment for each potential viewing, second viewings for more attractive properties, submit a low bid, wait for the agent to get hold of the buyer, get back to you, and then repeat multiple times until a satisfactory bid is accepted. And that is not even half the tale. The problem is that in between the various stages, there can be significant time lags, some on your part, some on the agents, and some on the buyer. Some of these delays can be intentional, and some can be deliberate.

You might disagree with the last statement in the previous paragraph. Deliberate delays? By yourself?

Let’s give an example. Perhaps you have viewed a property and like it. You would want to make an offer to avoid another buyer snapping it up, but make an offer too soon and the agent and seller know you are keen. Your first couple of offers are likely to be rejected. Remember that the agent is working for the seller to get the best possible price, and not for you, and will keep pushing you back until he senses he has extracted every last pound from you. Your rate of response is an indicator of how keen you are on the property, and also a hidden signal of how much more you can go. Hence while you are eager to get hold of the property, you may feel it is wise to slow down any counter offers you make or any further contacts with the agent, to give them the impression that the property is not all that important to you. It is a way of making them sweat instead of you.

Of course, estate agents are wise to these antics – they themselves partake in it. When they say they will get hold of the seller right away, do you really think they are ringing the seller every twenty minutes until he picks up? More likely they will leave it until the end of the day, or tell you the next time you’ve rung that they haven’t heard back yet. They are deliberately introducing delay to make you get jittery and also to flush out your interest. And this is done to multiple buyers to extract the best property price. And in doing so, the best commission.

But in the process, a lot of time is wasted.

This is perhaps why a sale by auction draws so many. It is a scenario where all cards are on the table, all offers presented in public view – unlike a sealed bid process, where all cards are presented to the estate agent without any form of public scrutiny.

Buying by auction seems a simple enough progress. There are many ways to go about it. Before an auction takes place, all buyers view the property in order to ascertain a bidding strategy and the upper limits to which they will bid. It is important that a viewing be made as there are many things that can be gleaned away from the sales brochure. While agents are bound to market the property responsibly, they are looking to get a commission by sale and would of course market it in the most positive light. You cannot go by the sales brochure alone.

Potential buyers may make their interest known to the marketing agent, and their bid acts as a reserve.

On the day of auction, bidders either attend in person, or send a proxy to represent them in the auctions.

A property auction can be a strange scene. A room with some bidders in person, some on the phone with clients, the agents trying to draw prices towards or above the reserve. Sharks circling for the kill? Perhaps, but sharks would only come if there is food for the taking.

The importance of having viewed the property prior to auction cannot be stressed. The Property Ombudsman was recently called to resolve a dispute between a buyer and an agent.

The dispute centered around an auction property that had been incorrectly described as having two bedrooms instead of being listed as the one bedroom property that it was in reality. The error was only corrected at the last minute. The marketing agent found out only the night before and endeavoured to contact those who had submitted bids, presumably to get them to notify him of a withdrawal if they did not want to continue. At the property auction the property was clarified to be a one bed property, and as could be expected, the winning bid did not come from any present among the bidders. Instead it came from one the agent had received a prior written bid on.

The property ombudsman had to mediate between the “winner” who claimed the agent had misrepresented the property. It found that the buyer should have been aware of what was being purchased and done his own due diligence, but it also found that the agent should have made better attempts to get in touch with the buyer to ensure that the change in sales description was acknowledged.

The agent was asked to recompense the buyer to the tune of £750 but there was no compensation for the difference between the price between a two bed flat and a one bed flat.

Buying by auction presents conveniences but don’t be misled. There are responsibilities on the part of bidders and agents that arise as a result. If you are considering buying by auction, it goes without saying you absolutely must see the property before buying!

Beware the internet-only buyer

If you were an estate agent, what would you do if a buyer wanted to make a purchase of a property without even seeing it?

You might commend yourself on the quality of brochures and website. Maybe the website has flash features that allow your users to see the interior of properties in a panoramic view, which in itself is a good thing because it means it cuts down on the number of initial viewings you have to do, if potential buyers can look at a property beforehand and not have to book an appointment to view it.

Technology has significantly improved our lives and sped up processes, and is an advantage that there is less time spent waiting, communication flows faster, and information is more accessible.

Take for example, the conveyancing process. In the days before the internet the conveyancer went about his business and if you wanted to know at which stage a house purchase was at, you’d have to keep ringing or pay a visit to the office. Now the conveyancer can log the stages that have been complete, and you can view a record of work on your mobile device. You don’t have to waste time or money calling the conveyancer, he or she doesn’t have to be distracted from his work, and it is a win-win situation.

Having technology and using it well is also a time saver. Nowadays it is easy to view the interior of properties, and a schematic of the property dimensions before actually setting foot in the property. It cuts out one layer of viewings both for the interested party and estate agent, and because any information about the property can be put online, such as whether it is a freehold or leasehold property, the ground rent, or any information on the vicinity – the estate agents are able to give as much information to buyers, which not only saves them from repeating the same facts over and over again, but also helps by filtering out uninterested buyers (for example, if the property was leasehold and the buyers wanted one with a share of the freehold) and diverting in potential buyers. In the latter case, for example, if a property is within the vicinity of a good school, putting up the information online would help draw in buyers with families.

In the examples above, we have written about the benefits of technology with reference to property sales, but the benefits are equally applicable to lettings. The use of technology accelerates the initial stages of a sales or letting for both an agent and a consumer and for an agent, the people that get in touch thereafter can be said to be considered serious parties. Nevertheless, no matter whether the property is for sale or for rent, there is no substitute for actual viewing somewhere down the line before signing on a purchase. Even people who buy off plan visit the site to acquire a feel for the actual place, one that cannot be obtained from the glitz and glamour of a website or sales brochure.

So it was slightly surprising, even suspicious, when a TPO member agent received emails from a overseas buyer in China, who wanted to make the full asking price on a property, but without having actually setting foot in it.
The estate agent was sought by emails  times. Each time the overseas “buyer” demonstrated an interest in offering the full asking price offer on a property. The TPO member agent asked for personal documentation and when they arrived by email the documents were found to contain a series of potentially destructive computer viruses. Thankfully the member agent had exercised caution and vigilance, and exercised good judgement in not getting swept away by the opportunity of making a quick sale.

The Property Ombudsman (TPO) has issued a warning to all estate and letting agents to act with caution, as fraudulent ‘buyers’ target agents with the latest computer virus scam. It is not entirely dissimilar to the ransomeware viruses that crippled the NHS a few months ago, and there are no limits to which fraudsters will not go to in order to hijack a computer, even to the point of nurturing a business relationship before going in for the kill.

What would you do if you received an unsolicited email from a stranger? Your first instinct may be to google them to see if they exist. But fraudsters will have already done so, and assumed the identity of someone to appear credible. It may be prudent to exercise caution in these dealings.

It is not known what impact the viruses could have had on the agent’s IT system if it had not been identified.

Gerry Fitzjohn, Board Chairman for TPO commented: “Fortunately in this case, the scam was identified and no company or customer details were compromised.  However, this is a reminder to all agents to be both cautious and vigilant. The importance of antivirus software is a given, but it is not a guarantee against computer viruses, so the best defence is also an educated user. If something seems too good to be true, it usually is. We would urge all agents to circulate this warning amongst staff.”

The UK’s quick house sale sector

On 18 April 2013, the OFT launched a market study looking at the UK’s quick house sale sector.

They wanted to find out whether this sector works well for consumers, whether any practices give cause for concern and, if so, how such practices should be remedied. They had also noted potential similarities with the sale and rent back sector and wanted to establish whether similar concerns arose.

Quick house sales can be beneficial to home sellers who want the certainty of selling their property relatively quickly, without trying to sell on the open market. There was concern, however, that some unfair trading practices may prevent home sellers from making informed choices when selling their home. In addition, there may be a disproportionate impact on vulnerable groups, such as those in financial difficulty who need to clear debts and/or avoid repossession, and older people.

Some trading practices may lead to sellers receiving not just a below market value price for their home, but a sum much lower than the amount the provider had led them to believe they would get.

Practices that gave rise to concern included:

•reducing the price offered at the last minute after the seller is financially committed to the transaction;

•making misleading claims about the value of the property or the level of discount to be applied to the sale;

•falsely claiming to be a cash buyer;

•unclear fee structures, for example, imposing an unexpected fee following an initial valuation, as a condition for progressing the service;

•inducing home sellers to enter into agreements that prevent them from selling to other buyers, with severe penalties for breach of contract.

The launch of the market study included a public request for information, seeking to hear from people with experience of this sector, including home sellers, providers, valuation experts, estate agents and debt advisors. They also carried out a survey of providers and held roundtables with providers and with a number of stakeholders. The information received helped them to build up a picture of the sector.

As part of their research they:

Analysed over 160 websites, for information about providers and to see their claims about the service they provide; and reviewed Companies House data, for company and officer information;

Considered 23 provider survey responses (out of 74 providers approached), and held a provider roundtable (attended by 13 companies), for more detailed information about providers and their practices, processes, business models and customer feedback;

Reviewed 111 public responses to their request for information, including 72 home seller complaints, plus follow-up telephone interviews with 20 complainants and analysis of other complaint data, to understand home sellers’ experiences and identify possible breaches of consumer protection law;

Engaged with stakeholders including government bodies, enforcers, consumer bodies and advice services, charities, professional standards organisations and trade bodies, for information that would inform their study;

Organised a roundtable workshop with consumer stakeholders to examine how the quick house sale process affects particular consumer groups and what good and bad business practice looks like;

and obtained HM Land Registry research, to provide data on properties bought and sold within a six month period, and conducted a survey of RICS surveyors, to help estimate the size of the quick house sale sector.

Quick house sale providers are businesses that offer to buy a property or find a third party buyer very quickly, but usually at a ‘below market value’ price.

The OFT have identified almost 120 such providers operating in the UK. It is hard to count them because some providers operate multiple websites. There are probably many more providers, particularly local ones advertising through the local media and by leaflet drops. Not all providers offer the same service:

•some buy properties direct from home sellers, either for resale or to let(when they do this, they refer to them in this report as ‘buyers’)

•some broker sales, that is they seek to introduce home sellers to third party buyers and may take steps around progressing a sale (when they do this, they refer to them in this report as ‘brokers’). Brokers can be instructed by either sellers or buyers, or both. When a prospective seller gives the go-ahead, a broker looks for a buyer from their list of investors, from quick house sale buyers and other contacts, or by advertising the property on the open market

•some identify home sellers and pass on details (or ‘leads’) to other quick house sale providers (they are sometimes called lead generators). Some providers buy some properties and broker the sale of others. Some lead generators may also sometimes broker.

How do providers profit from quick house sales?

•Most buyers try to resell the property as soon as they can for a higher price than the one they paid the home seller.

•Some buyers let out the property and receive a rental income (and sell later).

•Some brokers are paid a fee by the seller (like a traditional estate agent).

•Some brokers are paid a fee by the buyer.

•Some brokers agree a price with the seller and another price with the buyer, and receive the difference between the two prices.

•Lead generators receive a fee from the buyer or broker: a fee per lead (or batch of leads) and/or a referral fee if a deal goes through

From the upfront claims they make on their websites, most providers appear to be buyers.

However, from close examination of their websites and from what providers told us, they believe this may not be the case. Whether the provider is buying or brokering can have implications for both the speed of the sale and the discount on market value.

Brokers have less control over the purchase than buyers: they have to find a third party buyer, one who will pay at least the offer price, and one who can finance the deal quickly. There seems to be a greater risk that home sellers’ expectations might not be met. Home sellers should therefore seek extra assurances that brokers can deliver deals as promised before doing business with them.

Providers that fail to explain their services adequately to home sellers may be in breach of the Consumer Protection from Unfair Trading Regulations 2008 (CPRs) for misleading claims and/or omissions in particular. When providers broker, the OFT considers those activities are likely to involve estate agency work (as defined by the EAA), in which case they must comply with the requirements of the EAA and associated legislation.

The service on offer is one key feature to consider when looking at providers. Another is how the purchase will be paid for.

Quick house sale buyers or, in the case of brokers, third party buyers, may pay with cash funds that:

•are available immediately;
•will be freed up once another property is sold;
•will be raised from investors; or
•will be borrowed from a lender.

This too has possible implications for the speed of the service and the final offer price. A buyer with funds available immediately is likely to be in a better position to finalise a quick sale than one that needs to free up funds or secure finance. Problems with funding may cause both hold-ups and an attempt by the provider to renegotiate the sale price. Home sellers should ask questions to clarify whetherthe buyer can pay for the property and will have funds ready on time. Providers, to minimise the risk of a breach of the CPRs, should disclose how the buyer intends to pay for the property. Similarly, in order to minimise the risk of breaching estate agency legislation,brokers should not misrepresent the status of a prospective buyer, which would include their financial standing.

Lead generators are not really providers at all. They do not make deals with home sellers. They are themselves unlikely to be able to deliver either a speedy sale or a particular sale price because those things depend on buyers or brokers. They include them as ‘providers’ only because, from their upfront claims, they are currently hard to distinguish from buyers or brokers and will look like a provider to the home seller. What they actually do is an ancillary service. They attract interest from sellers and sell on the details to other providers.

Not all quick house sale buyers or brokers use lead generators, but some do. Lead generators must comply with the CPRstoo. Their claims, for example about their service, the speed of the quick sale, the offer price and the financial status of the buyer, must not mislead. Lead generators should also check whether they are engaging in any activities that fall within the definition of ‘estate agency work’ under the EAA. If they are, they will need to comply with the requirements of the EAA (and subordinate legislation) when they carry out those activities. If necessary, they should take independent legal advice on this matter.

Flying freeholds: possible arising disputes

Whether you are an estate agent, or seeing to buy a property, it is always a good idea to understand the terms you may encounter during the conveyancing process, not just so that it expedites the process – which, if you are a property hunter, means you spend less time talking to the solicitor who is charging you by the hour – but also so that there is common ground and understanding that prevents any issues at a later stage. It is more difficult to break away at the later stage of the buying process because you may feel you have already invested too much time and money already, and the pressures of time – if you need to have a property to move in to soon – may mean that you have to go along with the purchase even if you are not entirely with aspects of it. Another situation that may arise is that the mortgage lender may not be willing to lend, grounding the whole process to a halt. So while it may seem like a hassle to have to familiarise yourself with these new terms, it is a worthwhile investment

One term that may cause a fair bit of confusion is the term “flying freehold”. Many people assume this to be a case of the freehold of a building being transferable to another party, or having some sort of fleeting existence, but that is not the case. The term actually has some physical connotations. A flying freehold actually refers to a freehold of a property that overhangs another space. For example, if an apartment is built in an overhanging archway, that freehold does not cover the space below the dwelling. The apartment has a flying freehold. But this does not mean you should start getting your tape measure out and calculating the overhang area of guttering and drain pipes. The flying freehold element only refers to spaces which are habitable and space taken up by chattels are not usually considered.

Nevertheless, if you have any doubts our concerns about the possibilities of a flying freehold you should notify your conveyancer so that this can be checked out fully at the start of proceedings. It is also a good idea to mention this to your mortgage lender. It demonstrates to everyone that you are on the ball and proactive!

As an estate agent, it is a good professional practice to inform the buyer if a flying freehold does exist. Yes, while you may argue that the estate agents have an obligation to the seller more than the buyer, it is professional to mention this to the buyer if they are not aware of it, as they will certainly want to investigate it. It would save you time and money down the line and avoid the situation where a potential buyer withdraws or their mortgage lending falls though. And if you do sell a property with a flying freehold, the buyers may come back to you in future if they decide to sell, simply because they know you are thorough in your approach, and, well, you have sold the property before and know it well!

Solicitors, or more accurately in this case, conveyancers, need to be mindful of the possible scenarios that flying freeholds may entail. If you are purchasing a property with a flying freehold, a conveyancer should advise you both on the difficulties which may arise. For example, some mortgage lenders may not lend on a flying freehold. And you must certainly always find out who should bear the responsibilities of repair or how they are divided, as this is almost always an issue that will arise in time. And even if getting a mortgage is not a problem, for example, if you are a cash buyer, a conveyancer should inform you about the existence of flying freeholds simply because while you may think you are relatively unaffected by it, it may affect a future buyer who may have difficulties getting a mortgage for your property, or have reservations about buying it. Your purchase of a flying freehold property may make it harder for you to sell in the future. Enough said, don’t hide your head in the sand, or leave it to the conveyancer or mortgage lender. Knowledge is power!

For a flying freehold to exist, part of the freehold property that is being bought must overhang part of another person’s freehold property, and the overlapping area must be of a significant size, allowing for habitation. In some properties, such as semi-detached ones, this scenario may be fairly common. For example, part of the bedroom of one house may be sited above the lounge of a neighbouring house. A more common example is seen in properties where a room is built on an arch that allows a road through for parking at the rear of the property. If the area that overhangs is a space merely limited to chattels such as drain pipes or guttering, then the property is not said to have a flying freehold; conveyancers speak of these as having a right of ‘eavesdrop’.

But what if you live in a block of converted flats, where one property entirely sits directly on top of another?

If all the owners in the block collectively own the freehold, then the property is said to be a leasehold property with a share of freehold. The flying freehold principle does not apply, but nevertheless, the mutual obligations of property owners mentioned below may still do.

Flying freehold properties have mutual obligations to each other. The upper property should have a right of support from the lower one, while the lower property should enjoy a right of shelter from the upper one. If you live in a semi-detached house where one bedroom is directly over your neighbour’s lounge, then you have responsibilities to maintain your property so that it does not have any impact on your neighbour’s. Your floor is your neighbour’s ceiling, in the overlapping area, and if you do not maintain your own roof, causing your floor to flood, then your neighbour’s ceiling will be adversely affected too. Any major works that you carry out within your own property, for example, for example, in replacing floorboards must also not adversely affect your neighbour or the value of his property.
If you purchase a property with a flying freehold then you also have responsibility to the area under it, particularly with regards to maintenance.

If you have a property that has an area overhung by your neighbour’s property, then while your neighbour has the flying freehold, you have what is known as the creeping freehold. Your obligations to your neighbour above are the same as your upstairs neighbour’s obligations to you. You should not do anything within the confines of your property that will jeopardise your neighbour’s.

Estate agents and conveyancers should always advise buyers on these obligations at the outset to avoid any misgivings or disputes in the future between affected parties.

Most parties with flying or creeping freeholds usually work things out amicably but sometimes relations may sour and lead to dispute.

If the property you have is overhung by your neighbour, are you entitled to go into your neighbours’ property to carry out works? And if such works are enforced, are you entitled to recover the cost from them?

A landmark case regarding flying freeholders was the case of Abbahall v Smee (2002). The property owner with the flying freehold allowed it to fall into a state of disrepair, thereby affecting the property below. Loose masonry was falling onto the public thoroughfare below, affecting visitors to the ground floor property.

The court ruled that the owner of the property with the flying freehold had responsibilities to the party below, although the costs of the roof repair to the flying freehold property were borne in a 75/25 split by both parties as they would equally benefit from the repair.

If your property overhangs another, the Access to Neighbouring Land Act 1992 allows you legal provisions to go to your neighbour’s land to carry out repairs to your property. Of course, a simple word with your neighbour and mutual understanding is usually enough without having to apply for a court access order. But if you have to go the legal route to carry out repair, you will probably have to indemnify the other owner against any loss, damage or injury.
Perhaps a lesson to learn is that if you are buying a property with a flying freehold, or any property for that matter, make sure you can get along with the neighbours!

And what do mortgage lenders make of flying freeholds? Their view of it varies. Some lenders will avoid lending on such properties, while others will consider it only if the overlapping area falls under a certain percentage of the whole property. Some lenders will lend only if there is flying freehold indemnity insurance. Either you or your conveyancer should inform the mortgage lender of the existence of a flying freehold as soon as possible.

A flying freehold property is perhaps best thought of either as one whose structural integrity is dependent on another property, or where that overhangs another property in a way that has bearing on it. Either way, there are implications that property buyers, conveyancers and mortgage lenders should be aware of!

Would you use a buying agent?

What is a buying agent? To use the full term, a residential property buying agent is an individual or a property company that act on the instructions of the buyer to locate a suitable property and negotiate on their behalf. Who uses a buying agent? It could be someone who is an overseas buyer, and who needs the presence of a local, in-country agent to handle such a purchase. But it may also be an individual who is already in-country, but does not want to deal with the hassle of a property purchase.

But why, if you are purchasing a property, would you not want to be involved in its developments? Two main reasons stand out. The first is time – individuals who use a buying agent are usually too busy to handle the property search themselves. Secondly, it is for anonymity – if a well-known person was looking for a property, and wished it not to be widely known, a buying agent affords a level of third-party anonymity.

If you are considering using a buying agent, there are various regulations that would be useful to be aware of.

Associated Services

You are not obliged to use any associated service which is offered by the agent. In other words, while an agent may suggest to you to use their recommended financial adviser or surveyor, you have no need to do so. You are entitled to use your own financial adviser, legal representative, or surveyor. You may think that in using the buying agent’s recommended personnel, the buying process may be sped up because of established relations between the parties, but this may not necessarily be so. And it is good to consider that buying agents may receive kickbacks from such recommendations, so you may find yourself paying higher costs to their recommended service agents, which eventually flow back to the buying agent themselves.

You are entitled to decline such services – don’t let the agent pressurise you into one, or make you feel bad about it. The refusal of such services should also not prejudice any offers or viewings through the agent.

Duty of Care

It is customary that a buying agent must always work in the best interests of their client, that is to say the person who is paying for the agency services. The estate agent should treat, all those involved in the proposed sale or purchase fairly, and with courtesy. If the buying agent or one of his staff, has any personal or business interest in the property, the buyer or seller, must be told as soon as possible in writing. That is to say, if the buying agent, for example, is advising the client to buy a property that the agent has a stake in, this must be made clear at the outset.

Fees and charges

An agent must inform the buyer in writing, before they agree to use his service, what fee (including VAT) is payable and when the fee is due. It must be stated clearly whether the fee is a fixed price regardless of the achieved buying price or whether it is calculated as a percentage based on that achieved buying price.

Illegal / Criminal Activity

Allegations of illegal and criminal activity (e.g. fraud) should be referred to the relevant authority (such as the police) or regulators (such as Trading Standards) who are empowered to undertake enforcement action. The Ombudsman does not have regulatory powers and cannot consider allegations of illegal or criminal activity.

Marketing

The selling agent must describe the property as accurately as possible and not misrepresent the details.

Agents are legally bound under the Consumer Protection from Unfair Trading Regulations 2008 to describe a property truthfully and provide material information to allow potential buyers to make an informed transactional decision. Sales particulars should give a general description of the property and will highlight, for instance, the type of heating, double glazing installed, or appliances or furnishings that may be included in the sale. The buying or selling agent will not have tested any facilities but if they are of particular importance to you it is wise to question the agent further to allow him to and he can ascertain the relevant information from the seller or the sellers agent on your behalf.

Negligence Claims

Negligence is a term with a legal meaning and only a court can decide if an agent’s actions or inactions were negligent. The Ombudsman cannot decide claims of negligence and cannot speculate on what a court may decide. Consumers should seek legal advice if they wish to pursue a negligence claim.

Offers

The buying agent must record all offers received and not conceal, misrepresent, withhold or delay communicating offers. It is the seller who decides whether to accept an offer; to reject an offer; when to stop marketing the property after an offer has been made, and to whom to sell the property to and at what price.

Terms of Business

All buying agents must give their clients written terms of business. The buying agent must clearly explain all fees and charges and tell you if any fee will be payable if you withdraw your instructions to buy the property.

When dealing with the agent you should ensure that you understand:

The fee that will be charged and whether it is based on a sliding scale according to the eventual sale price is at a set amount.
How long the agreement runs for; how you can terminate it and with what period of notice is required.
Whether you will have any continuing liability to the agent for a fee if you do terminate the agreement.

In particular you should:

Realise that when you sign the agreement you are entering into a legally binding contract under which you may be liable for fees.
Ensure that you have read and understood the terms of the agreement and the commitments you have entered into. Do not feel pressured into simply signing it and be aware that if you sign the document in your home or at your place of work you are entitled to cancel it within 14 days.
Make sure that you receive copies of all relevant documents such as the agent’s terms of business.

The Estate Agent

He is instructed by the seller of the property and whilst he has a responsibility to treat any prospective buyer fairly, his client, (the person paying for his services), is the seller. Both selling and buying agents are required to act in the best interests of their clients. They have no control over the legal process but will generally assist in checking on the progress of the purchase and, if agreed, in handing keys over on completion of the sale. Buying agents can also neogtiate on you the buyers behalf if instructed.

The Legal Representative

A Licensed Conveyancer or Solicitor and will progress the formalities of the sale and determine with the seller and the buyer the potential dates for exchanging contracts and completion.

The Mortgage Provider

If you require a mortgage to buy the property you may be dealing with a bank or building society, either directly or through an adviser. The agent is not allowed by law to give you any financial advice but he might refer you to an adviser with which he has links or which is a separate part of the same company. The agent will not have access to the records of the mortgage provider or adviser and has no control over the progress of any mortgage application.

The Surveyor/Valuer

Instructed by the prospective buyer or their mortgage provider and will offer various surveys from a general valuation report to a structural survey. Unless the mortgage provider specifies otherwise it is the buyers choice as to the type of survey undertaken.

Considering a Quick House Sale?

We often run into temporary signages promising quick house sales. While this is a eye-catching solution to those who need to sell their property fast, wish to avoid dealing with solicitors, or cannot afford to hang around for what seems like prolonged periods waiting for details to be finalised, it is advisable best to be cautious – after all, everything has a catch, a string attached somewhere.

In a quick house sale, a business (provider) offers to buy the property or find a third party buyer very quickly. In return, the seller usually accepts a ‘below market value’ price for their home.You should think carefully before opting for such a sale. These top tips should help you when deciding whether you really need or want a quick house sale. If you decide to go ahead, they will help you to choose a provider, spot the things that could go wrong, and understand how to prevent problems.

1. Consider all your options
There may be more options than you think. They might help you to keep your home if you don’t want to sell or to sell at a better price.

2. Take time to find out about the process
What are the pros and cons? How does it compare to alternatives such as using a normal estate agent or negotiating with your lender? Will a quick house sale provider suit your specific needs?

3. Look for the services that work best for you
Not all providers are the same, so look at what different ones can offer. Don’t accept their claims at face value. For example, if the provider says ‘completion in days’ or ‘we pay close to full market value’, ask how often they do this.

4. Check out providers’ credentials
If providers say they have signed up to a code of practice, redress scheme, or are regulated by an official body, check this for yourself. Also check to see what protection the code of practice, redress scheme, or regulation offers you.

5. At each stage, make sure you have the information you need to make informed choices
If you don’t understand something, ask the provider for answers and don’t proceed unless you are happy with them.

• Who is buying the property?
• How will they pay?
• Is there proof that they have funds available?
• When will the sale happen?
• Who is valuing the property and how?
• What is the offer price? Will this change? If so, why?
• If the survey is given as a reason fora reduced offer, ask to see it.
• What fees and charges will you have to pay? Will you have to pay them even if you don’t go ahead with the sale?

We would advise choosing providers who offer you the information listed above without having to be asked for it.

6. Never accept verbal information or promises
Always get the provider to put them in writing.

7. Don’t be pressured into a decision you are not comfortable with
For example, the provider should not require you to use a particular solicitor.

8. Before you sign any agreement, read it carefully and obtain independent legal advice if you are at all unsure

Do you understand what you’re being asked to sign and its implications? Don’t sign an agreement unless you know what you are agreeing to. Also, never be shy about negotiating on price.

9. Watch out for long tie-ins

Be wary about signing any agreement that ties you to the provider for a longer time than you are happy with. If you want a speedy sale, question why a quick house sale provider would need an agreement for more than four weeks.

10. Be honest and accurate when answering questions
Giving incorrect information or leaving important things out is likely to be uncovered later and may cause hold-ups and even reductions in the offer price. In some cases the sale may even fall through.

11. Don’t commit to the sale until surveys and legal checks have been carried out, you have a final offer in writing and you have independent legal advice

Be cautious of making major financial commitments, or other decisions you might regret if the sale did not go through as expected.10. Be honest and accurate when answering questionsGiving incorrect information or leaving important things out is likely to be uncovered later and may cause hold-ups and even reductions in the offer price.

If you are still unhappy, you can:

• Talk to Citizens Advice. They providefree, confidential and impartial advice.Visit www.adviceguide.org.uk or call the consumer helpline on 08454 04050612.

12. What if things go wrong? If you are not satisfied with the provider’s service, tell them and give them a chance to investigate and resolve your complaint.

• If the complaint is about the provider’s advertisements, report the matter to the Advertising Standards Authority. Visit www.asa.org.uk or call 020 7492 2222
• Report the matter to your local Trading Standards Service
• Consider whether to take your own court action if you feel the provider may have: breached the contract, used an unfair term or misrepresented something that was important to your decision to sell to, or through, them. You should obtain legal advice first.

Commercial – Guidance and Information

If you’re one of the many that have ever considered running your own business and working for yourself, you may – depending on the nature of your business – need commercial premises. A commercial premise is a place from where you run your business, and is the opposite of a residential property, although if you work from home (such as some tutors) then the lines can be blurred!

Commercial premises are usually leased initially, although if your business becomes big enough you may wish to buy the freehold or a permanent location. But the assumption is you move from considering leasehold to considering freehold. For many businesses the latter step is one they never make because the outlay to buying a permanent property is too large. But whether you are leasing or buying a commercial property, there is enough jargon to befuddle you at the outset. Fortunately, here is a guide to help you get to grips with the terms.

 

What is “Alienation”?

Alienation is the legal transfer of title of ownership to another party.

 

What happens with “Assignment” of a lease?

Assignment of a lease is where the tenant transfers/sells its interest in the property for the unexpired term of the lease to an assignee.

 

What is an “Authorised Guarantee”?

An agreement an outgoing tenant enters into with the landlord when it assigns its lease to a new tenant. Under the agreement, the outgoing tenant guarantees the performance of the covenants by the new tenant. The outgoing tenant therefore becomes the guarantor for the new tenant.

 

What are Business Rates and who collects them?

Business rates are a business tax for occupiers of non-domestic property, collected and managed by the local council.

 

What is a “Break Clause”? (If you are a football fan, chances are you’ll already know this!)

A break clause (or a ‘break option’ or ‘option to determine’) is a clause in a lease which provides the landlord or tenant with a right to terminate the lease before its contractual expiry date, if certain criteria are met.

 

What is the “Break Notice”?

A break notice is the formal notification that one party wishes to exercise its right to terminate the lease in accordance with a break clause. Notices must be drafted with care, taking into account compliance with any pre-conditions, to ensure the right is successfully exercised.

 

What does it mean to “Contract Out” and why does it happen?

The parties to a lease may, by agreement, contract out of the Landlord & Tenant Act 1954 with the main consequence being to remove the tenant’s rights of renewal, and eligibility for compensation in certain circumstances (e.g. landlord’s redevelopment ).

 

What are “Covenants”?

Covenants in a lease refer to the obligations imposed on each party by the various clauses.

 

What are “Dilapidations”?

Dilapidations are the potential breaches of a tenant’s lease covenants in respect of repair, reinstatement of alterations, and redecoration. These can be raised by a landlord during the term of the lease or at lease expiry.

 

What is an “Estate Charge” and who levies it?

Part of the tenant’s service charge liability relating to the maintenance of the estate on which a commercial property is situated. The landlord normally imposes it on the tenant – think of it as a service charge for commercial properties.

 

What is meant by “Exceptions and Reservations”?

These are areas that would otherwise form part of the property but are not included in the lease.

 

What is “Forfeiture” and who has the right to it?

When a business tenant is in rent arrears or in serious breach of the lease terms, then the commercial landlord will in most cases have the right to forfeit – the right to summarily end the tenancy. The landlord must, however, comply with relevant legislation when exercising this right.

 

Full Repairing and Insuring (FRI) – who is responsible?

FRI is a term used to describe a lease where the tenant is responsible for all repairs and for insuring. The term also applies to the liability for payment of these costs. FRI leases can therefore include terms where the landlord pays for external repairs and insurance and recovers the cost from the tenant usually via a service charge.

 

What is meant by “Gross Income”?

This is one of the terms any business must acquaint themselves with. This is the total current income receivable from a property investment before allowing for any deductions.

 

What is “Gross Internal Area”?

Gross internal area refers to the total area within the perimeter walls of a property and makes no allowance for the space occupied by staircases, walls, etc. This measurement is the standard measurement given for industrial property. It gives you a rough idea of the space available for the running of your business, but if there are prominent features like large walls or spiral staircases, then these will eat into the area.

 

What does “Guarantee” mean?

An agreement whereby a third party is liable to pay the tenant’s debts, or carry out their duties, if the tenant fails to do so. The person that gives the guarantee is the tenant’s guarantor.

 

Who is the Head or Superior Landlord?

The person who is landlord to the tenant’s landlord (see freehold).

 

What are Heads of Terms and why are they necessary?

Heads of terms agreements record the requirements of both the transacting parties in the property transaction. It is designed for both parties to fully understand what they are subject to, and reduce any misunderstandings. The heads of terms form the basis of the eventual contract and will be passed to the parties’ solicitors tasked with drafting the contract or lease.

 

What is Indexation?

The practice of linking tenant payments under the lease to a published index, such as the Retail Price Index (RPI) or the Consumer Price Index (CPI). Mainly associated with service charge payments and rent reviews. This is to ensure that the payments rise in accordance with other societal rates. While fixed payment rates are sometimes used, landlords will more commonly use indexation.

 

What is an Internal Repairing Lease (IRL) and how is it different from an FRI?

Unlike a FRI lease, the landlord retains responsibility and financial liability for the cost of external repairs.

 

Who is the Landlord?

The person who grants the lease or who now has the right to enforce the terms of the lease. Be sure you are aware of how this is different from the head or superior landlord!

 

Why is a Lease necessary?

A legally binding contract between a landlord and a tenant which sets out the basis on which the tenant is permitted to occupy a property.

 

What is “Lease Surrender”?

An agreement whereby the parties bring a lease to an end other than by contractual expiry or use of a break option. This can often involve negotiation of a premium or rely on a mutually beneficial surrender. Lease surrender can occur at the early renewal of a lease, when one lease is surrendered and another one is drawn up.

 

What is a “Lessee”?

The legal term for ‘tenant’.

 

Who is the “Lessor”?

The lessor is the legal term for ‘landlord’.

 

What is the role of a Managing Agent?

A managing agent is the party instructed to oversee the property by the property owner or landlord. Managing agents have varying responsibilities, from maintenance and repair management to rent and service charge collection.

 

What are “Market Rent” and “Market Value”?

Market rent is the estimated amount for which a property could be leased. The market value is the estimated amount for which a property could be sold.

 

What is “Net Income”?

The income from a property investment after deductions for ground rent and non-recoverable expenditure.

 

What does “Net Internal Area” mean?

The ‘useable’ measured internal floor area of a building. It is the gross internal area minus unusable floor areas such as stairwells and walls.

 

How is “Net Yield” calculated?

Takes the assumed or actual costs associated with purchasing the property into account to produce a figure in respect of the relationship between the rental income and the total capital investment.

 

Open Market Rent

The most common basis of valuation at rent review (also known as open market rental value – OMRV). Defined as the rent at which the premises might reasonably be expected to let, in the open market, at the review date, on the terms of the hypothetical lease.

 

Overage – definitely not what you might think!

Overage (also known as ‘clawback’) concerns the right to receive future payments triggered by future events. Achieving planning permission for change of use or development, practical completion of a development, or the sale or lease of the completed development are potential events that could trigger an overage clause in a lease.

 

What is a “Premium”?

The price paid for a lease, in the open market, where one tenant assigns its interest to another, replacement tenant.

 

What does “Quiet Enjoyment” mean?

This is a term entitling the tenant to operate the premises without interference from the landlord.

 

Rateable Value

The assessment required of non-domestic property to represent the rental value at a prescribed valuation date, subject to assumptions about repair on a full repairing and insuring basis.

 

What does “Reinstatement” refer to?

Refers to the tenant’s liability to remove its alterations at lease expiry, reinstating the property back to its condition at lease commencement.

 

Rent

The amount the tenant pays regularly to use the Property.

 

What is “Rent Review” and when does it occur?

A periodic review of rent during the term of a lease. Rent review clauses often require an assessment of market rent at the review date, but some incorporate other factors, such as the movement in the Retail Price Index.

 

What is the Rent Review Memorandum?

Records the outcome of the rent review process, whether the review is settled by agreement or arbitration / independent expert determination. It identifies the lease, the review provisions and both the original and current parties, recording the amount and effective date of any revised rent. It may either be annexed to the lease or retained with each party’s deed packet as a separate document.

 

What is the purpose of the Repair Notice?

Usually taking the form of an interim schedule of dilapidations, the intention of the notice is to highlight breaches of the lease to both the landlord and the tenant.

 

What is the “Schedule of Condition” for?

This is a record of the condition of property at the commencement of a lease. This is so that any damage arising later can be properly assessed.

 

Schedule of Dilapidations

This is a list of outstanding repair and maintenance items that have accrued under the terms of a tenant’s repair and maintenance obligations.

 

Security of Tenure

Unless the parties have ‘contracted out of the Landlord and Tenant Act 1954, tenants of commercial premises have the right to remain in occupation, and to a new tenancy on terms prescribed under the L&TA legislation. Also known as ‘lease security’.

 

Service Charge

Payable by a tenant for services provided in relation to the repair and maintenance of common parts.

 

Who imposes Stamp Duty Land Tax and who pays it?

A government fixed tax, chargeable on the execution of documents, relating to transactions such as leases, agreements for leases and conveyances. The duty is payable by the purchaser or lessee.

 

Sub-letting

Where a tenant grants a new lease for the property, or part thereof, to an alternative occupier, for a period less than the residue of the tenant’s lease.

 

Tenant

The tenant is the person who rents the property from the Landlord. Also referred to as ‘Lessee’ or even ‘leaseholder’.

 

What is the “Term”?

Also known as “Lease Period”, this is how long the property is to be rented for.

 

Transfer of a Going Concern

A mechanism used on the sale of a property investment where VAT is chargeable but not actually payable. It is only applicable where the asset is and remains income producing after the transaction.

 

What is “Vacant Possession”?

A term denoting the empty state of a property.

 

Without Prejudice

A legal term used in negotiations and correspondence meaning that anything said, or offers made cannot be subject to forced disclosure in the event of litigation or arbitration.