Earlier in the year, I sold my house. As you may remember I marketed it through an online estate agents and was pleased with the results. That was back in June. I decided not to buy in London immediately because I wanted to invest some money into small scale property development and didn’t want to tie up all my capital. I did however fall for a property in Rye, East Sussex which had two shops attached to it and would be a wonderful place for holidays and to rent out as a holiday let. So the property would pay for itself and I would get the added bonus of being able to enjoy it myself.
I put my offer in and it was accepted. That was in April. I booked my surveyor and almost from the very moment I started to follow the normal process of buying a property in the UK, I encountered issues. The survey had to be done by someone who also specialised in commercial property, because of the shops. Surveyors are cautious people – they give you every possible worst case scenario and you as the prospective owner have to decide which bits scare you and which bits don’t. He expressed concern about several areas – the shop windows, damp in the cellar and about the building being on a hillside. So, I booked a structural engineer to report on the hillside behind the property (the garden was on terraces below the building). He was happy that there was no evident subsidence or land slip but expressed concern about the open cellar (mentioned by the surveyor) to the building called the Undercroft and suggested it might be caused by the drains. So, I booked a drain survey. He expressed concern about a blockage to one of the drains. I asked the owners if they would get the drains jetted. NO.
Before I go any further I should say that the house is a listed building. It was built in 1580 and remodelled in the mid nineteenth century, so the street frontage is Victorian. That didn’t worry me particularly but the idea that the drains were possibly affecting the cellar that supported the building did. Especially since the current owners had done extensive refurbishment in 2010-12. So this was a sticky issue for a bit. But then early in July, my solicitor threw in the curve ball – the leases on the shops were irregular, old fashioned and the tenants had a protected tenure under the 1954 property act. To make matters worse they were new leases, one was only signed a week after my offer was accepted.
All of a sudden my legal team grew and I was called in for a meeting to explain exactly what the pitfalls of these leases could be. Lawyers are risk averse, they want you to make an informed decision because let’s face it, buying a property is a big investment. So, the partner specialising in litigation explained that the 1954 property act was written to help tenants who were setting up businesses (after the war) to be able to establish themselves in a community and to be able to rely on the premises becoming part of their identity in that community. It was a way of offering stability at a time when life was fragile and so the 1954 act protected tenants by offering them an automatic right of renewal of their lease when the term ended. In 1954 that was good for business. In 2016 it isn’t. I was potentially buying a property with two tenants who had an automatic right of renewal to their leases at the end of every term of that lease. And as there was no rent review in the leases either, at the same rent. In theory that would be fine if everyone were happy, because no-one wants an empty rental unit, right? But the minute there was a problem (like rents not being at market value) these leases would be a noose around my neck because I would have to compensate the tenants – or take legal advice to rewrite the leases so that they were no longer protected tenants. Either way I would have to pay.
According to the estate agents – who had written one of these leases – there was no intention for the tenants to have protected tenure and they suggested that the owners might be amenable to re-issuing the leases. So I asked the owners if they would terminate the current ones that my lawyers were so concerned about and arrange with their tenants to enter into unprotected leases. Initially they said NO. And that I thought was that. But then they came back and said ‘alright.’ And this is where it got really tricky. One of the points of my survey was the repair of the shop windows, he felt they needed immediate attention, but under the terms of the leases, the decorative repair of the windows was the responsibility of the tenants – and it hadn’t been done. How was I, as new owner, to get my brand new tenants to undertake repairs to the windows (because my surveyor suggested it should be done before the winter) when they likely had made no provision for the expense?
The problem with taking over leases that you weren’t party to is that they are likely not to suit your idea of how you want things done. I could make no changes after these leases were re-issued until the term ended in two or three years. And that to me seemed like a long time to have to wait to get things done – or to interact as landlord with my tenants. So I asked if we could add a clause to the leases (that were in the process of being rewritten) that would work as a service charge – payments that the tenants already made coming to me for me to administer as owner of the property. That way I could keep the maintenance of the building on track; wouldn’t that be of benefit to the tenants as well? This idea went down very badly. Not only was it a NO, it was a ‘we don’t do things this way in Rye’ NO.
I took advice – from my lawyers who really were only able to say ‘the owners aren’t obliged to do this. When you buy a house you buy it as you find it, the leases are the same.’ I spoke to a dear friend who is a property law lecturer – who said ‘do the tenants have their own independent legal advisors? Even though they’ve agreed to give up the current leases (with protected tenure) and go to unprotected leases, without the rubber stamp of a lawyer, they can come back at any time and say “we were misinformed” and you would have to compensate them for that because you would be the owner.’ And then I spoke to my Dad (who worked in property for 50 years) who said ‘you’re doing too much running around. You’re the buyer, they should be trying to convince you it’s a good buy. Personally if they won’t include the maintenance clause, walk away.’
So, what would you do?