13 Jul It’s a fixer upper! – What a Conveyancer thinks about buying a property to do up.
If you are looking to invest money in property, either residential or commercial property, you might be considering buying something in poor condition and/or that’s cheap in the hope of renovating it to make a profit.
Whilst we can’t give you financial advice, we can suggest some of the legal issues you should out for, to increase the chances of your investment being successful.
Firstly, consider what the property is being used for now and what it is that you are planning to use it for after you’ve purchased it. Sometimes people buy a property intending to change its use, without realising that they might need the consent of their landlord and/or the council to do that.
For example, if you are buying a shop that was last used to sell fruit and veg, you will probably need the Council’s permission if you want to change it to be a restaurant. Also, there are different types of restaurants – there is a big difference between a café that just snacks and take away food, and one that does sit down meals. If the premises you are buying are currently being used as a snack bar, that doesn’t automatically mean that you can change it to a sit down restaurant without the council’s permission.
All the different types of use for properties are listed in categories. So restaurants and cafes are A3, whereas takeaways are A5. This also applies if you are hoping to buy a residential property and turn it into commercial, or vice versa. You will need the Council’s permission. If you make a change without permission, the Council can make you change it back again. If you are uncertain, get us to check what category the property falls into, and tell us what your plans are, and we can let you know how to go about making the necessary application to the Council to make the change. It’s obviously better to do this before you buy the property, because if it turns out that the council are unwilling to agree to your proposed change, you may be stuck with an unwanted asset.
Secondly, if you are buying leasehold property (residential or commercial), you will almost certainly need your landlord’s consent to make any significant changes. Some leases will even require consent for minor works such as wat colour a property must be painted, and how often. So you want to be careful about just buying it and hoping that you can make all the changes you want, because your landlord may not agree. The safest thing to do, is to draw up your plans for change at the same time that you put in your offer to purchase. As part of the purchase transaction, we can agree a licence to alter with your landlords, which means that once the purchase has gone through, you have the right to make the changes, so long as you stick to what was in the licence. That doesn’t mean that once the purchase has gone through you cannot make any changes, as you can approach your landlord at any time and ask for permission to do any works you wish. However, when you are negotiating to take a lease, the landlord may be much more accommodating of your requests than he will be once you are committed to the lease.
We are seeing a lot of people buying up older residential properties, such as old bedsits, and renovating them into nice modern flats. Sometimes the property will come with existing tenants, and you have to wait for their assured shorthold tenancies to come to an end, and then serve them with notice to get them to leave. Occasionally you have to go to court for an order to evict them and sometimes they still won’t go, so you need to get the bailiffs to come round and remove them (never try to do it yourself!). This is all relatively straight forward compared to what happens if you have a tenant who is in occupation under an old style tenancy. Some long term tenants will have protection from eviction which means that the only way you can force them to leave is if you can provide suitable alternative accommodation. Even that is not as straightforward as it sounds, as what you might consider suitable, may not be suitable in their eyes, and then you will need a court to decide for you. This can be a lengthy and time consuming course of action, and it is very hard to predict what a court might say. They are very reluctant to move tenants and can often take some convincing that the property you are proposing to move them to, is suitable. So if you are buying a residential property, and any of the occupiers have been there for more than a few years, let us know and we will check over their rights. In reality, a protected tenancy probably needs to be much longer than this, but it’s always a good idea to be certain.
Another place where we see the potential for investors to lose out is in lease extensions. If you are buying a residential leasehold property, you will always have the automatic right to extend your lease. Provided you go through the process properly (which involves serving notice and agreeing to pay fees etc) your landlord cannot refuse, but can (and almost certainly will) insist on a payment for the value of the lease extension and their costs. There can be some hard negotiating over what the right figure should be, but usually it’s possible to resolve the matter. Where we see it going wrong is where people buy flats, believing they can immediately extend the lease as soon as the purchase has gone through. This isn’t the case. You have to have owned the property for at least 2 years before you can serve notice. If you are buying a reasonably long lease, then a couple of years may not matter to you. However, if the lease is already a bit on the short side, and you are buying the property with a view to doing it up and selling it, then you may not want to hold on to it for that long, and by the time you are ready to sell it, the short lease may put some people off and will certainly put some mortgage companies off. But all is not lost. If you are interested in a property where the lease is not as long as you like, you can agree with the seller that they serve the notice for you (so long as they’ve owned the property for at least 2 years) and that the lease extension be done as part of the purchase. It’s something we’d need to talk through with you in more detail to explain how it would work in practice, but at least you know that there are options available to you.
So if you’re thinking about buying an investment property, and any of these points might mean you need more help and guidance before you go too far down the line, have a chat with us about your project and any concerns and we’ll happily point you in the right direction.
Disclaimer – our articles are designed to give you guidance and information. There is no substitute for proper direct advice, particularly as everyone’s circumstances are different. If anything in this article may affect you, please contact us for advice that is specific to your circumstances.