Are Protected Tenancy Properties Bargain Buys?
Are Protected Tenancy Properties Bargain Buys?
As an investor, if you have ever been tempted to look at or buy a property which has a sitting tenant – or more properly a property with protected tenancy, then you will have come across the minefield of legalities which it would incur.
Buying A Protected Tenancy Property
These properties will often come up at auction, as they are harder to sell on the open market. Generally, if they do come up, then a cash buyer would be sought because it’s very difficult selling or buying with a protected tenant in situ. That’s why the purchase price always looks very attractive. There would typically be a large discount for these properties. Financing via a mortgage will be a big issue, as the lender would not be able to gain vacant possession if you default on the mortgage payments.
What About The Rent?
Other problems with protected tenancies are the inability to increase rent to an open market level. You can find out via the rent officer if the the rent was registered. If it’s not, then it isn’t legal. Whilst it’s possible to apply to to the Rent Officer for an increase, it’s likely not to be at open market levels. Add to this the fact that you cannot give the tenant notice to quit. You will have to wait till they decide to leave- which is very unlikely, as many tenants have been in situ for over 20 plus years, some for their whole lives! If you were to wait it out until the tenant dies then you need to be aware that anybody living with them can retain the tenancy.
Waiting it out can of course be a gamble, and in some cases these investments can pay off handsomely, particularly where property is in high demand.
If the property has been improved during the tenancy then they can apply for a new fair rent and it is likely an increase would probably be allowed, but it would still probably get the rent up to market levels – that could take years. A breach of the “obligation to pay rent” is one of the few cases that can be brought to court to remove a protected tenant.
Some Rules For Protected Tenancies
- Before 15 January 2024 most tenancies are protected and are governed by the Rent Act 1977. You cannot change them, unless the tenant can be persuaded without duress to move out. However, having said that, the grounds for possession or eviction are discretionary and are very limited.
- After 15 January 2024 tenancies gave assured tenants security of tenure, what changed was the restrictions on how much rent could be charged.
- Just to clarify it further, protected tenancies are statutory tenancies which roll on from month to month. This gives the tenant the right to a fair rent. The key word here is fair– this does not mean a market rent!
Selling A Protected Rights Property
If you own one of these properties and would like to sell, then there are companies that will buy protected tenancy properties.You should expect about 75% of the open market valuation. Remember that most buyers want vacant possession.Many of them will be in very poor condition and require extensive modernisation. Make sure you could get an independent valuation of the it’s worth, both with a sitting tenant, and with vacant possession.
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Janet Trowell Discountletting.co.uk Join me on Twitter LinkedIn Google plus
By editor|February 15th, 2022|Categories: Buy To Let Property, Mentor Moments|Tags: Bargain, buy, let, long term, Properties, protected tenancy|8 Comments
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Very informative Roberta, your quite right protected tenancies are a minefield. I have just taken on a property that was protected for nearly 40 years! The house it’s self was like walking into the dark ages! It had a basic kitchen & smelled terrible. The owner was barely getting rent above £400pcm a month.
It’s Market value for rent now is £1195pcm, subject to spending around £15k to make it more habitable.
Its often the way that the tenant or relatives of can outlive the investors/ or their business too. This is effectively the ultimate long teem investment-one you might never see the true cash from.Im not sure I would want to own a property that long with minimal cash flow and dilapidation in process, its a future money pit.
You may certainly need deep pockets to buy a Protected Tenancy it’s a real gamble for an investor, certainly one that may take a lifetime to see a return on.
We bought two properties with protected tenants, both old ladies, about 10 years ago. The first came about in a strange way when the sons of the occupant came and asked us to buy the property because the company who owned it had it on the market for years and during that time weren’t keeping it in repair. We considered all the pros and cons and decided to buy. It’s local to our business and I had the cash. The occupant was in her 60s and a nice lady. The rent is very low, just over £200 pcm but we have no mortgage so we’re happy for her to stay, we look after her and when she eventually leaves, (could be another 20years at most), we’ll refurbish and either rent at market rates or sell. The second one came about in a similar way after the first lady told the second one who was in a similar predicament with property on the market and no repairs being done. We’ve installed central heating, new windows and various other improvements to keep the properties in good repair and make sure they’re fit to live in.
We like old ladies, they are lovely tenants ans we care about them like our own grandmothers. As a spin off it’s also been good for our business because we work in a small area where everyone knows the ins and outs of each others lives and people like what we did.
It’s working well for us but only because we’re as certain as we can be that we won’t need to sell for the next 20 years or so. Hopefully they will ease funding when we retire!
Really nice to hear a positive take on this Ann.Looks like you may have a mini goldmine there! Often what happens is that they get taken over and left in the same state. Assuming they won’t pass the house on to someone else when they die, sounds like a good very long term investment.
Forgot to say we bought them for 50% of market value so yes a good long term investment. Such a weird way to get into it though!
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My parents live in a property with a protected tenancy. Are there any obligation in myself buying the property. Does the Landlord (being a large property owner company) have to sell and if so what discounts through local authorities are available if any.
I live in the property how ever moving out next month, but want to buy as a investment.
Can you advise or point in the right direction for help
Thanks