Property Sales in England - chains, and legally binding question

[puntloos]

While as some of you know I've been working for quite a while on designing a home, a bit of a 'strange one' - a house came on the market that might just be even better so I find myself at least considering taking a very different path, but trying to work out a few things, comtemplating sunk cost etc. but..:

 

The seller haven't accepted our offer, but looking to complete in normal timeframe (4-6 weeks?) and the house has tenants until August (so that's quite a time for them to be 'alone with their thoughts'). 

 

My question: after exchange of contracts, what stops a seller from withdrawing anyway? For example if they start regretting the agreed price, can they bail? They will politely return my deposit and wave goodbye? Many websites say the exchange is 'legally binding' but I don't see what actually happens if they "illegally" walk away? Crucially I don't want to be left with no house of course.

 

- What's the downside for the seller other than feeling bad? Can I sue them for damages? (e.g. if I sell my current house, abandon my work on the design and then don't get 'their' house.. - how damaging can I claim that is?)

- Do they get criminally charged because breaking a legally binding thing is, well, illegal?

- Can I put some specific wording in the contract that will make it less appealing for them to bail out?

- Should I put my own completion date for selling my house in August as well, and if the seller flakes, can I use that as a fair reason to cancel the sale of my house?

- Can I just 'inherit' the seller's tenants and complete right after exchange? How does that work?

 

Tx!

[markc]

As far as I’m aware and understand, once the process is in the hands of the conveyancer then both parties have given over their rights and designated the solicitor etc. As acting for themselves so an exchange of contracts is in effect a binding change of ownership

[puntloos]

3 minutes ago, markc said:

As far as I’m aware and understand, once the process is in the hands of the conveyancer then both parties have given over their rights and designated the solicitor etc. As acting for themselves so an exchange of contracts is in effect a binding change of ownership

 

You'd think but https://www.samconveyancing.co.uk/news/conveyancing/can-i-pull-out-after-exchange-of-contracts-370 says:
We are often asked “Can I pull out after exchange of contracts?" and the answer is yes, however if you do pull out then be prepared to bear the costs - Click here to see the costs of pulling out after exchange of contracts."

  

where it lists the seller costs as:

 

* Costs of estate agents fees and any others related directly to the marketing of the property
* Costs of conveyancing
* In principle, any additional costs which might be incurred because of any delays to an ongoing purchase contract which a seller rescinding had entered into.

 

which is almost nothing, maybe a few thousand? At least the buyer pulling out nets the seller 10% of the sale price (or whatever downpayment).

[ProDave]

Once you have exchanged contracts, that forms a legally binding contract which has legal penalties in the event of failing to complete.

 

The BIG red flag here is the property is currently tenanted.  This is more an issue for the vendor, but if the tenants do not vacate when they say they will, the vendor could fail to complete as he would be unable to provide vacant possession.  This is a risk to the vendor not so much you, and for this reason most would advise not to exchange contracts until the tenants have left.

 

If the tenants refuse to leave it could require a court order and that could take up to a year in some cases.

[Ferdinand]

My comments:

 

It's normal for Exchange and Completion to be on the same day, and for chains to be synchronised.

 

The practice is that you sign the contract and deed of transfer undated, and your solicitor / conveyancer keeps that on file until both sides are ready to exchange. So I think you or they can instruct a solicitor or conveyancer to stop if it is still on their file. Subject to the terms of business you have agreed with your solicitor.

 

Dave is correct the Tenancy is a red flag. Insist on proven vacant possession before exchange, and then be ready to move the process quickly from then. I would consider putting that in the contract if you are worried, so they are in breach if you can't get possession. But you need some legal advice on that.  

 

One possible but rare complication is if T claims unlawful eviction and claims it back. That would just be a tar pit to resolve. ie Change the locks pdq.

 

Currently I would be planning on 4-6 months not 4-6 weeks to complete the process.

 

As for what happens if they withdraw after exchange, that will be a breach of contract so you can recover your costs caused. Check with your solicitor what that actually means, and whether you can consider punishment clauses - though these may make them walk away.

 

F

[puntloos]

I was actually somewhat planning to speak to the tenants anyway, asking if there's any unseen downsides to this house. (While it is by no means cheap, the asking price has a "fairly low" cost per sqm for the area. ). Good idea? bad?

 

Just in general, normally tenants have max 6 month break clauses so surely they can be legally evicted if the process starts today? Sure, there's rare cases where tenants become 'combative' but given that I'm currently renting I'm not super stressed about that particular- and presumably fairly small - risk.

 

I certainly agree that "vacant possession" is desireable but I suspect I'm a slightly less desireable buyer so accepting the 'tenant exit in august' might be okay.  

 

Or would the seller be fine to exchange in August? Perhaps supersticiously, I just worry that the seller pulls out in a month or two, costing me a ton of headache. I would certainly prefer to have the contract signed-in-hand, and then wait for a while until I get the keys (while being 'certain' I will eventually get them). Of course being more chill about losing the house is better but we have been monitoring the local housing market for 4 years and this is a fairly rare find...

Edited February 9, 2022 by puntloos

[Ferdinand]

15 minutes ago, puntloos said:

I was actually somewhat planning to speak to the tenants anyway, asking if there's any unseen downsides to this house. (While it is by no means cheap, the asking price has a "fairly low" cost per sqm for the area. ). Good idea? bad?

 

Just in general, normally tenants have max 6 month break clauses so surely they can be legally evicted if the process starts today? Sure, there's rare cases where tenants become 'combative' but given that I'm currently renting I'm not super stressed about that particular- and presumably fairly small - risk..

 

I certainly agree that "vacant possession" is desireable but I suspect I'm a slightly less desireable buyer so accepting the 'tenant exit in august' might be okay.  

 

Or would the seller be fine to exchange in August? Perhaps supersticiously, I just worry that the seller pulls out in a month or two, costing me a ton of headache. I would certainly prefer to have the contract signed-in-hand, and then wait for a while until I get the keys (while being 'certain' I will eventually get them).

 

I'd certainly talk to them. Personally I'd also bung them £20-50 for their trouble if they are willing.

 

A 6 month break clause only has meaning when a tenancy fixed period is a year or more.

 

"6 month break clauses" normally relates to the practice of making tenants sign a new contract every 6 months, and charging them for the privilege aiui. I think that these days in England it is deprecated. It used to be a wheeze used by some letting agents to generate extra admin revenue by getting more renewal fees from tenants.

 

Unless they are having that done to them, they are likely to be on a Statutory rolling tenancy - which will probably be the case for self-managing landlords.

 

The 12 month delay Dave is discussing is that that is how long the eviction process is taking at present. If you find yourself in that situation but without vacant possession the quick fix is to bung the T £1000 to sign an agreement to terminate and leave. The risk is that you find yourself with a T who cannot be evicted.

 

Lifetime tenancies still exist, such as an Assured Tenancy. Typically a property with an assured tenancy in palce is worth about 50-60% of one with vacant possession. To buy out a well-advised assured tenant will cost a decade's rent at least. Buying houses with Assured Tenants in place is a kind of roulette for landlords.

 

Seriously, don't touch "tenant in place" without the appropriate risk management - and the experience to judge what is 'appropriate'.

 

F

[ProDave]

This is widely discussed amongst landlords.  The date a tenancy agreement ends is pretty meaningless, other than it sets out the minimum before which a landlord cannot serve notice.  At the end of the agreed period, it normally transfers to a monthly rolling contract.  At that point a LL can serve notice to end the tenancy with whatever notice period the agreement states.  That is really just asking the tenant to move out.

 

If the tenant does not vacate then, and only then, the LL can seek an eviction notice from the courts.  Only when that has been granted does a LL have the right to evict and can then call in the bailifs to enforce that.  It is getting that court order that can take time.  There was a long period due to Covid when you could not even seek a court eviction notice and there was a huge backlog when the courts re opened.

 

If you complete with the T still in occupation, then YOU become the LL and take over the tenancy with all the legal implications of that, and you would then have to serve notice and possibly take it to court for an eviction notice.

[puntloos]

1 hour ago, Ferdinand said:

 

I'd certainly talk to them. Personally I'd also bung them £20-50 for their trouble if they are willing.

How would you play that?

 

<ding dong>, Hi, I'm puntloos, interested in buying this house from, I believe, your current landlord. Can I ask the inside scoop from you, hidden problems with the house, perhaps give you 25 quid for your trouble"?

 

 

1 hour ago, Ferdinand said:

Seriously, don't touch "tenant in place" without the appropriate risk management - and the experience to judge what is 'appropriate'.

 

Who could help me with this? Would the conveyancing sollicitor be able to give me solid advice?

[Happy Valley]

You could make it a condition of the sale that the landlord (or agent if any) serves the Section 21 notice now on the tenant for the tenancy to terminate at the end of the current fixed term in August. This gives the tenant more than the minimum two months required and the tenant may wish to move earlier in which case if you have completed you could agree a mutual termination of the tenancy or complete with vacant possession if they move out beforehand. 

 

Who manages the property the vendor or a professional agency? A professional agency may be better as could provide proof that the tenancy has been carried out in accordance with the terms of the agreement by the tenant(s) and the rent paid on time each month.

 

BTW the deposit (if any) must in one of the 3 govt backed deposit schemes in order for any notice to quit to have any validity. 

Edited February 9, 2022 by Happy Valley

[Temp]

4 hours ago, puntloos said:

The seller haven't accepted our offer, but looking to complete in normal timeframe (4-6 weeks?)

 

I think that might be optimistic. How long are searches taking these days?

[ProDave]

18 minutes ago, Happy Valley said:

BTW the deposit (if any) must in one of the 3 govt backed deposit schemes in order for any notice to quit to have any validity. 

AND the tenancy must be worded properly, the appropriate notices must have been served correctly and in the correct order at the start of the tenancy AND Gas safe certificate and EICR must both be valid and in date.

 

There are a LOT of things that can be wrong to invalidate an S21  and a shrewd tenant who has no intention of leaving will of course not point these out to you until it gets to court for the possession hearing at which point it gets kicked out until you rectify the issue then start again with a new S21.

 

IF the tenant has not vacated by exchange of contracts you want to ensure you have a copy of the tenancy agreement and all notices served and the gas safe and EICR etc before you decide whether to exchange with the tenant still there, or delay exchange until it is vacant.

[Mr Punter]

3 hours ago, Ferdinand said:

Lifetime tenancies still exist, such as an Assured Tenancy. Typically a property with an assured tenancy in palce is worth about 50-60% of one with vacant possession. To buy out a well-advised assured tenant will cost a decade's rent at least. Buying houses with Assured Tenants in place is a kind of roulette for landlords.

 

I have a couple of these.  The income is not great but the tenants take care of most maintenance and decoration.  We just service the boiler and do any external repairs should they be needed.  Also the rents are linked to RPI +2%, so that will be about 9.5% this year.

[Ferdinand]

4 hours ago, Mr Punter said:

 

I have a couple of these.  The income is not great but the tenants take care of most maintenance and decoration.  We just service the boiler and do any external repairs should they be needed.  Also the rents are linked to RPI +2%, so that will be about 9.5% this year.

 Indeed.

 

I think we mentioned something similar with Building Plot Options, where someone bought an option to buy on death of the owner, and the elderly lady lived into her 90s and the developer popped his clogs first.

 

Like giving tablets to horses with a blowpipe.

 

 

"The Horse Blew First"

[Ferdinand]

  

5 hours ago, ProDave said:

AND the tenancy must be worded properly, the appropriate notices must have been served correctly and in the correct order at the start of the tenancy AND Gas safe certificate and EICR must both be valid and in date.

 

There are a LOT of things that can be wrong to invalidate an S21  and a shrewd tenant who has no intention of leaving will of course not point these out to you until it gets to court for the possession hearing at which point it gets kicked out until you rectify the issue then start again with a new S21.

 

IF the tenant has not vacated by exchange of contracts you want to ensure you have a copy of the tenancy agreement and all notices served and the gas safe and EICR etc before you decide whether to exchange with the tenant still there, or delay exchange until it is vacant.

 

There are also back claims that the tenant can make depending on if any of the various legal responsibilities are not fulfilled precisely. eg if the Deposit is not protected correctly and the required admin followed precisely, you can be made to compensate the T for up to 3x the amount of the deposit. Personally, that made me stop charging deposits in most cases.

 

And there can be swingeing "Civil Financial Penalties" that a Council can impose off their own bat for various offences, usually related to breach of licensing terms.

 

Much of this is various political machinations to gradually undermine Section 21 over the last 10-15 years, which have made it all more and more complex. When the current Govt get round to it, it will be taken behind the bike shed and strangled.

 

You also need to make sure that it is the *correct* tenancy agreement you are being presented with.

 

I'm not trying to scare you off, more warning you that you are entering a potential shark-infested custard.

 

6 hours ago, puntloos said:

How would you play that?

 

<ding dong>, Hi, I'm puntloos, interested in buying this house from, I believe, your current landlord. Can I ask the inside scoop from you, hidden problems with the house, perhaps give you 25 quid for your trouble"?

 

 

I'd have the convo, and just make the offer as a thanks afterwards. There's nothing to stop you offering a cash sum to get them to move out before you exchange as an insurance policy, to make sure it is vacant.

 

On the rapid exchange I mentioned above, I offered the vendor an extra £1000 to complete by a date that would save me the 3%. They made it, and got the £1k. While I saved £2k of tax.

 

Quote

 

Who could help me with this? Would the conveyancing sollicitor be able to give me solid advice?

 

The resource required is an expert in English Rental Law (Scottish Law has now seriously diverged, and has a new and different set of 'challenges').

 

That could be a solicitor who knows property law - ask them what their expertise is.

 

Or you could get paid advice from an experienced staff member at a local Letting Agent.

 

I would recommend the Landlord Forums at Property Tribes or Landlord Zone, both of which I have been at as long as I have at Ebuild / Buildhub. That will give you much information, and both have sponsors who are reputable sources of information.

 

Another way to get advice if you know what you want to ask would be to take out a subscription to the Landlord Law service offered by solicitor Tessa Shepperton. She does a monthly subscription at £25 or £30 and it seems you get a private Forum or 30 min phone call including input from Tessa. For a couple of months of sub it looks a cost effective way to get peace of mind. Tessa is a star.

https://landlordlaw.co.uk/join-landlord-law/

 

Or you could join the NRLA and use their advice line.

 

They will all tell you to make sure you are protected with asbestos underpants and an attic of paperwork before exchange, and that to some extent you are rolling the dice. I would say that for the circs asking on the fora, then paying Tessa if you need to is your best option. The thing you need is to feel sufficiently confident now that we have said all of this, and be able reasonably to anticipate and handle any consequences.

F

[Ferdinand]

5 hours ago, Temp said:

 

I think that might be optimistic. How long are searches taking these days?

 

A few weeks in my area.

 

In the past I sweet talked them into doing it in a couple of days, when Sir Guy of Gosborne was hoicking Stamp Duty with a special 3% extra for LLs. Got a pair of properties through with about 4 days to spare.

 

It would be more complex to work the connections now, and I would need a very valid carefully worded persuasive excuse.

[puntloos]

Welp, we were outbid. That was exciting. 

This house market is crazy, but given the weird tenant stuff maybe it was for the best.

 

Back to our regular program of me trying to research myself into weird corners