Tenant wants to renew for up to 18m - should I?

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    Tenant wants to renew for up to 18m - should I?

    Hi,

    Am renting to a tenant for 6m who has been as good as gold so far - the 6m AST is about to end in a months time.

    She wants to renew the accommodation for 6 or 18 months - seems to be happy to sign up for 18m and may be willing to put some or all upfront.

    Sounds ideal, however...

    I am unsure how I should set the rent for this period of time - clearly I want to maximise it? I do not know what the rents will be like in 18m time?

    I am unsure if I want to sell the house - I assume I would not be able to do that if I have a tenants in situ on long term ASTs?

    I guess if I take the money upfront I am definitely tied in for this period of time? Or could I hand the rent back and service notice?

    I heard there is a way for Landlords to tie in tenants and have the option for them only (Landlords) to provide 2m notice if their plans change ('unilateral' break clauses)? Is this possible?

    My plan maybe to buy a residential home in a different location for myself - with the additional stamp duty for 2nd homes - I guess I would need to sell this current property first? Could I put this property into a company or something as it is not my main dwelling - then could I be a first time buyer for a new residential purchase?

    The current 6m contract will expire in about a month and it will go periodic. I want to avoid that and sign up some kind of new deal with this tenant.

    Welcome any clarification - or questions I should be asking myself to help me get this clear in my mind?

    #2
    Originally posted by advicewelcome View Post
    The current 6m contract will expire in about a month and it will go periodic. I want to avoid that and sign up some kind of new deal with this tenant.
    Why do you want to avoid that?
    The reason for that is probably the key issue here.
    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

    Comment


      #3
      Thanks.

      Well... I guess periodic tenancies enable to tenant to leave with 1m notice and requires a 2m notice from the landlord? - not good for me.

      I don't want to lose this tenant if the decision is better for them to stay.

      Just unsure how retaining this property as a rental could affect my need to buy another one for residential living in a different location?

      Comment


        #4
        Offering a new fixed period simply means that neither of you can end the tenancy unilaterally within the new fixed term.
        Putting in break clauses simply changes the length of that restriction (it's unlikely you'd get away with a one-sided landlord only break clause if it was challenged).

        The tenant always has a slight advantage in ending a tenancy - they can leave without notice on the last day of the fixed term and you always have to give two month's notice.

        The tenant's notice is not one month, it's a minimum of one month ending at the end of a tenancy period.
        That should give you plenty of time to prepare to remarket and re-let the property.
        If you are so reliant on the income that a period of a month without rent is not supportable, you might need to start to build up a reserve to cope with that scenario.

        The property will mean that any other property you purchase will attract an additional 3% Stamp Duty.
        When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
        Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

        Comment


          #5
          You sound unsure of what your plans might be... you are the worst kind of Landlord for someone to have (sorry, but it's kinda true).

          You should go to SPT, it's the only fair way forward for both parties - yes, the notice period is well understood to be short for both parties, but you can't have your cake and eat it. I mean, you tying someone in to a long-term tenancy while retaining the right to just end it on a whim yourself ain't gonna fly... is it now?

          The answer is "no".

          Alternatively, sort out your plans and let there be a new fixed term of a length you're comfortable with. It might be another 6 months, it could be 12, or 18. I'm quietly confident that the knowledge of having the income stream over that time period will offset any doubts you may have about rents shooting up by 50% in that timeframe. If you want to get in a kicker, consider what you might increase it by next year, say 5%?, and bring it in now but a bit lower, say 3%?

          It should be all perfectly achievable by agreement... no need for clever clauses and suchlike. Keep it simple, if you can.

          Comment


            #6
            BTW... you said - "I do not know what the rents will be like in 18m time?" - but that's hokum, because you can know what the rent for this property will be like for the next 18 months, as you set it.

            There is no formal requirement for your property to remain perfectly in-line with the market... that's up to you and... what is 'the market'?

            Generally speaking, no property is exactly comparable to another... they all occupy different spaces in the universe, some are just 'quite like' others... even flats in high-rise blocks will differ from floor to floor and they're cookie-cutter'd out.

            Comment


              #7
              Originally posted by jpkeates View Post
              The tenant always has a slight advantage in ending a tenancy - they can leave without notice on the last day of the fixed term and you always have to give two month's notice.
              The tenant's notice is not one month, it's a minimum of one month ending at the end of a tenancy period.
              Ah - will need to check the contract - but was under the impression that ASTs normally state the contract rolls into periodic at the end of the Fixed Term - meaning tenants will have to give minimum of 1 months notice once the fixed term lapses.

              Comment


                #8
                All AST's roll into a periodic tenancy after the end of the fixed term (if nothing else happens), regardless of what the agreement says, that's the law.
                It's possible the agreement can make the periodic tenancy contractual as well, but the effect is pretty much the same from your perspective.

                The law also sets the notice periods for the automatically created tenancy.
                The same law also changes any of the contracts notice periods to be in line with the legislation.

                Because the tenant has to pay rent monthly in advance, it makes sense that they have to end their rental at the end of the period they're forced to pay for.
                It's also (it seems to me) fair that they shouldn't be forced to stay and pay rent for more than a single month.
                When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                Comment


                  #9
                  Originally posted by jpkeates View Post
                  Because the tenant has to pay rent monthly in advance, it makes sense that they have to end their rental at the end of the period they're forced to pay for.
                  It's also (it seems to me) fair that they shouldn't be forced to stay and pay rent for more than a single month.
                  Cheers, got it. They have actually signed up to 2m tenant notice post the AST - but this is probably unenforceable as the law says 1m.

                  I would want to get them onto a AST again - I think renting in Dec is hard and there are costs associated to heating during winter - so a 12m rental is better. But if they are offering 18m - I am debating if I should take it? I have to think about the 3% stamp duty with a 2nd property purchase and the priority of this - or if the current rental property which is not my main residence can fall outside of a 1st residential property definition.

                  Also - how much should I decide to increase the rent if at all? - for non-London populated areas there is little benchmarking. Its seems quite hard to establish what the tenant is willing to pay without playing too much of a game of poker and potentially losing them (any techniques to do this)?

                  Comment


                    #10
                    25%. You know it makes sense. Seriously... how can we decide that for you? We know nothing about the property or the area.

                    Comment


                      #11
                      Ta. Was asking the Landlord community for techniques as opposed numbers, assume its along the lines of talking to local agents and asking what they would benchmark the place at.

                      Comment


                        #12
                        Originally posted by advicewelcome View Post
                        Also - how much should I decide to increase the rent if at all? - for non-London populated areas there is little benchmarking. Its seems quite hard to establish what the tenant is willing to pay without playing too much of a game of poker and potentially losing them (any techniques to do this)?
                        There's a massive amount of benchmarking, every month new average rental figures are released, and you can just look at rightmove and zoopla.

                        I have two "techniques"

                        All of my tenants who have been there for more than 6 months are on rolling monthly agreements.
                        While this is what I do for a living (so my situation isn't the same as yours) and they know this, the flexibility suits everyone.

                        I don't worry about the rent.
                        Recently my costs haven't really gone up (other than some tax which won't really kick in until 2018) and I've been increasing the rent on change of tenant.
                        I've a couple of properties I'll want to look at in a while, but I don't look at the rent I'm receiving and grudge the couple that are below market rent.
                        They're possibly £50 a month "out of whack" and I look at the 12 month regular as clockwork payments and feel good (I always plan for 11 payments a year).
                        When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                        Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                        Comment


                          #13
                          jpkeates,

                          Thanks. This makes sense, so easy to get into a bun-fight over £50 (which actually makes up a very small % of the total rent) and which you loose a deal over will end up costing a lot more in hassle and rental loss. I guess this is best managed in a 1-to-1 conversation with the tenant - and with any bargaining process understand the loss to the tenant first in not securing the accommodation in order to establish if their bottom line will work for us.

                          With this tenant there is willing to pay upfront due to their self-employed status (thus they will want discounts). He may be willing to provide 18m upfront - but if I accept this - I assume I could not put in break clauses or rent review during that 18m period? Maybe I could ask for a 18m AST and 12m upfront - then a rent review at the 12m stage? - just not sure if such an arrangement is legal and how it benefits or disadvantages the Landlord.

                          Comment


                            #14
                            Properties are harder to let in the winter months, but conversely, your tenant is unlikely to move from your property in the winter months.

                            If you think you might sell, then forget lengthy contracts.
                            You first need to decide what your long term plans are.
                            Allow tenants to protect their own deposits. I want free money when they do it wrong

                            Comment


                              #15
                              Originally posted by advicewelcome View Post
                              With this tenant there is willing to pay upfront due to their self-employed status (thus they will want discounts).
                              Are you offering discounts, then?

                              There was a question on this many moons ago and, to a Member I think, everyone agreed that paying up front does not entitle a Tenant to a discount, nor does it encourage the Landlord to offer one or agree to one. It's a Landlord's market out there. You are in control.

                              Comment

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