Private Rented Sector Buy to Let Consultants
Some types of property lease options and rent to buy schemes in the private market are dangerous for would-be first time buyers, who as tenants pay a premium for a lease (on top of the rent under their tenancy agreement) to a landlord to give themselves an option to buy the property from the landlord at some future date.
It seems to us that the majority of the risk is on the tenant’s side because in the event the landlord defaults on his mortgage, the lender will recover the property and the lease option would have to take second place.
In this scenario, there is a real likelihood that the tenant’s lease premium would expire worthless and they would find themselves homeless at worst or having to pay rent to the mortgage lender (who would ultimately seek repossession.)
Also, if the tenant misses just one payment, the lease could expire too.
We feel that much tighter controls should be in place to make would-be first time buyers aware of the risks and would strongly urge property buyers to take INDEPENDENT legal advice before entering into such arrangements.
These schemes are attractive to some property investors as it potentially gives them an additional income lease option income stream from the tenant and may be very especially attractive when used in connection with what are called “sandwich lease option” deals.
However, we worry about the risks some tenants are taking on with these schemes which can, in the worst cases, prove worthless.
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