A division of Ronan Property Services

Frequently Asked Questions for the Investor/Landlord/Developer:

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Q Why should I offer my tenant/buyer a share of the increased value during the rental period?

A  You will have no void periods and no maintenance costs throughout the rental period. You will have a virtual guaranteed sale at the end of the fixed period. You will incur no estate agency fees on the sale. You will not need to pay out any agents fees during the rental period as you will have a tenant/buyer who intends to buy this property and will therefore look after it and improve it whist he/she is renting. You will have a larger and more secure net income to offset against giving away a small proportion of the increased equity. You can increase rentals annually in line with inflation.

Q How does the tenant/buyer find the deposit under Scheme 1?

A On top of the agreed rental the tenant/buyer will agree to pay a monthly sum towards saving for their eventual deposit for a mortgage. This should be sufficiently large to provide at least 10% for them to exercise their Option to Buy at the end of the three year period.

Q Does the tenant/buyer pay anything towards the deposit in Scheme 2?

A No. The tenant/buyer pays a slightly higher rental but the deposit is funded by receiving a share of the increased equity in the property between the value at the time that the tenancy starts and the market value at the end of the six year period.

 

Q What percentage of the increased value do the tenant/buyers receive. ?

A When the tenant/buyer’s sign the Assured Tenancy Agreement they (and the landlord) also sign a binding Option Agreement that gives them 5% of the increased value for each year of the tenancy. The tenant's can exercise the Option at any time after the end of the third year, so their share would be as follows

After 3 years completed 15%

After 4 years completed 20%

After 5 years completed 25%

After 6 years completed.30%

Q How does the tenant/buyer receive payment of the deposit payments or share of the equity?

A The total amount of the deposits is deducted from the agreed selling price and that should produce the difference between market value and the loan to value offered by the chosen lender.

 

Q When the tenant/buyer exercises their option, who decides the current market value?

A There are two methods. In Example Scheme 1 the market price is agreed and fixed at the start of the agreement. This is calculated by the landlord by applying the current average house price inflation figures forward by 3 years to achieve the anticipated market value.

The price remains fixed and is agreed by both parties in the option agreement.

In Example Scheme 2 we use a different calculation as 6 years is to long a period of time for accurate forward calculations. When the tenant/buyer gives notice to exercise the option, a chartered surveyor is instructed by the landlord to give an official valuation. This valuation is used as the sale price.

Q Can the tenant dispute the surveyors valuation under scheme 2?

A Yes he can pay for another surveyor to provide a second opinion. The landlord and tenant will then agree on the figure to be paid. If no agreement is reached the tenant then has the alternative of not exercising the option and ending the tenancy.   

Q As the tenant/buyer is responsible for the maintenance of the property; do I have any other financial expense or obligations?

A By law you will remain responsible for the statutory gas and electricity checks. The tenant/buyer will be responsible for maintaining the appliances in good working order.

You will also have to insure the property with the usual landlord’s insurance policy. The tenant/buyer will be responsible for household contents insurance.   

Q When the tenant/buyer exercises their option, who decides the current market value?

A There are two suggested methods. In Example Scheme 1 the market price is agreed and fixed at the start of the agreement. This is calculated by the landlord by applying the current average house price inflation figures forward by 3 years to achieve the anticipated market value.

The price remains fixed and is agreed by both parties in the option agreement.

In Example Scheme 2 we use a different calculation as 6 years is to long a period of time for accurate forward calculations. When the tenant/buyer gives notice to exercise the option, a chartered surveyor is instructed by the landlord to give an official valuation. This valuation is used as the sale price.

Q Can the tenant dispute the surveyors valuation under scheme 2?

A Yes he can pay for another surveyor to provide a second opinion. The landlord and tenant will then agree on the figure to be paid. If no agreement is reached the tenant then has the alternative of not exercising the option and ending the tenancy.   

Q As the tenant/buyer is responsible for the maintenance of the property; do I have any other financial expense or obligations?

A By law you will remain responsible for the statutory gas and electricity checks. The tenant/buyer will be responsible for maintaining the appliances in good working order.

You will also have to insure the property with the usual landlord’s insurance policy. The tenant/buyer will be responsible for household contents insurance.   

Q How can I ensure that the rent is paid, and on time?

A You can arrange a standing order payment to be paid by the tenant/buyer’s bank monthly in advance. Your rent should always be paid because if the tenant/buyer does not pay on time they will forfeit their right to buy the property and the initial deposit.

Q Do I need to get a guarantor?

 A  This depends upon the individual circumstances and you will have to judge each case upon its merits. However with first time buyers it is often easier to obtain a guarantor as parents will often vouch for their children and agree to pay if the tenant/buyer’ fail in their commitments.

Q What happens if the tenant goes into arrears?

A  If the tenant goes into arrears for a period of more than sixty days, then they lose their right to buy and the option agreement comes to an end. You can then start legal proceedings to regain possession of your property.

Q What happens if the tenants situation changes?

A  It is a well known fact that on average 50% of marriages or live in partnerships do not survive the first five years. There is therefore a one in five chance that one or both of the tenants may decide not to continue with the option agreement.

Therefore the tenant/s has three options:-

a) At any time after the initial six months, the tenant/s can give one months notice to vacate, but the option to purchase and initial deposit will be lost. You can then re-let the property.

b) They can assign the tenancy and the Option Agreement to another suitable tenant. They will need your agreement and approval of the proposed new tenants subject to the usual references to do this.                                                                                                           

c) They can let the tenancy go to full term but choose not to go ahead with the option to buy.

Q What kind of properties are suitable for rent2buy schemes?

A New or re-sale properties of 2 and 3 bedrooms up to 25 years old are most in demand. Older properties which have been well refurbished can also be appropriate. You may also have some properties in your existing portfolio, which you intend to dispose of when the current tenancy is up.

Q What does it cost?

A The solicitor’s costs for drawing up the Option Agreement. This can be partly offset by the £300 option payment received from the tenant/buyer. You may use our option agreement which should reduce the cost of your solicitor drawing one up. You may also decide to take independent advice which will have to be paid for.

Q Will I need a Home Information Pack when the tenant exercises his/her option to purchase the property?

A In this situation, Home Information Pack’s are not required under the existing regulation as published on 1st November 2005. Update HIPs were suspended on 21-05-10

Q  Do I need to employ an agent?

A  Generally the answer is No. As the tenant/buyer has an option to buy he/she will look after the house and be responsible for its maintenance. Payment of rent can be set up by standing order with the tenant/buyer’s bank. There is therefore no need for the expense of employing an agent. As opposed to buy-to-let this can save you up to £6k over a six year tenancy

Q How can I accurately budget my costs and profits if I decide to go ahead?

A We have a spreadsheet based upon Excel which you can download to accurately predict your profit on the transaction. 

Q Once I have set it all up and in motion, do I have to sell at the end of the option lease?

A If the tenant/buyer chooses to exercise their option to buy, then you have to sell as it is a binding legal agreement.

 

Q Could the tenant/buyer exercise their option before the end of the agreed period?

A Yes they can, but this would be more the exception than the rule.

 

Q What if my circumstances change and I need to sell my property early?

A You can terminate the Assured Shorthold Tenancy by giving two months notice after the first six months, return his/her deposit and compensate him/her for their share of the increased equity. However we do not encourage landlords to join the scheme if they have this in mind as it undermines the scheme, and if we receive a complaint we may decide after investigation to prevent the investor from using the website again.

Q What if the tenant does not exercise the option to buy the property?

A  This is most unlikely but it does happen. The tenancy agreement merely comes to an end and the tenant vacates the property. You have therefore had several years of rent without the additional expense of maintaining the property. You therefore find another tenant/buyer and repeat the process at a new higher valuation.

Q Do I have to use one of your schemes to advertise my properties on the site?

A  No you are free to use your own version if it meets the standards of our schemes, is fair and reasonable to the tenant/buyers and complies with the Terms and Conditions of Associates that you must agree to before being granted access to use this site. However as the site advertises our schemes as a key element in the decision of the prospective tenant/buyer’s they will be expecting one of the schemes and may have already made up their minds which scheme they want to proceed with. In addition we will put a warning on your advertisement that you will not be using the standard scheme as advertised and in their own interests they should get it checked out by their solicitor.  

Q Do all solicitors understand lease options?

A As Lease-Options and Rent2Buy are relatively new to the UK, most solicitors will be unfamiliar with the concept. To ask a solicitor to produce an agreement could cost you thousands of pounds as the solicitor may have to spend expensive time upon researching an unfamiliar subject.

We would therefore recommend that you become an Associate of rent2buyonline and download our comprehensive Option Agreement and Assured Shorthold Tenancy Agreement. You can then present the agreements as a foundation guide to your solicitor who can tailor these agreements to your specific requirement as each property transaction is different. However your solicitor can no longer charge you thousands of pounds as these agreements can be used as a guide.

If you need a solicitor who is a recognised expert in the lease option field and highly recommended by property experts Click here to make contact by filling in our online form. We aim to respond within 24 hours excluding weekends and bank holidays.

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Finally we do recommend that you take legal advice before using our agreements as we can not take any responsibility for their content, suitability and accuracy in the particular transaction or series of transactions that you are intending to use them in.

Investors Please Note: The Rent2Buy schemes referred to throughout the prospective tenant/buyer pages of this website are based on the originals used directly by the operators of this website. They are only used as examples for their information, however Rent2Buy or Lease Option properties are offered by a large number of individual investors who may choose to use variations of this theme. Prospective tenant/buyers resourced through this website will expect to be provided with full details by the investor when they express an interest in one of your properties.

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