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hi all just need some advice for a friend, he currently rents out his first home in which he used the equity to purchase his second house that he lives in, now three weeks ago he got some tenants in fixed for 12 months, and nows realises that he cant afford the mortgage repayments due to being on a single income and having to top up on the rental and with his current mortgage he is struggling to make ends meet, he now wants to sell the rental and has a buyer but the tenants have refused to budge due to the short stay, which is understandable, my friend has rung the tenancy service to resolve the situation but to no avail he has asked me for advice but i am new to the game and would not be confident enough to advise him but told him i would put to you this forum that can or has been in a situation similar so any advice would be appreciated. cheers go the abs
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Hello booyah,
Two points.
First, the tenants do not have to move if they do not want to. They have been asked once and have said no, so I suggest leaving it at that. The house can be sold with the existing tenancy in place but this often puts a lot of buyers off in addition to the potential problems of advertising the property with tenants in place.
Second, if the first house was bought as a private home and money was borrowed to do that then the interest cannot be claimed as an expense, even if you later move out, put tenants in and treat the house as a normal rental. If this is the intention then I suggest that it is not done come time to complete the next tax return. There are endless posts on this subject in this forum - just run a search.
Sorry, not much good news there. Others may be able to suggest another plan of attack or highlight something positive to take out of this situation.
xris -
HI Booyaah
Your friend could offer to pay the tenants to move and if they accept some money he could have an agreement otherwise as Xris said he put them in fixed so he is stuck with it, he will just have to sell the house with the tenants in place.
Or wait till the year is up of course and just manage somehow until the year is over.
Sorry not much help, but if you beleive there is always a solution to a problem you will find it, maybe he is ment to keep it till the year is up.
RobynComment
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Being a bit lazy, here, Xris, but I have reservations aboutOriginally posted by xris
your comment that the interest on the rental cannot be
claimed, even though there's been a change of use.
From experience, I know that it is not a difficulty to 'transfer'
something from private usage to business usage and the reverse.
(Usually this is just a book entry, but some transactions
do need supporting documentation, e.g. independent valuation.)
What creates the impediment in this case?Comment
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Agreeing with Perry on the tax issue. You should be able to claim rates, insurance, mortgage interest, repairs and maintenance, all the normal things except depreciation as losses to offset against rent and wages income. You would need to see the numbers to understand if the problem was long term cashflow or month to month cashflow.
If the issues is month to month you could make up a year rental statement and apply for a special tax code (IR23BS) paying tax at a reduced rate at the single income job.DougComment
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Your friend is entitled to apply to the tribunal to terminate the tenancy. You can get this if unforseen circumstances occur. I would however think that in this case the Adjudicator would be a bit sceptical.Originally posted by booyaah
Without knowing anything about the relationship between you and your friend I suspect that his problem is that he is not getting good advise and thinking through the issues before leaping in.
Of course he would not be alone in that regard.
Things that come to mind like buying, letting, fixed term tenancy, perhaps not sorting out the tax issues, not getting a fixed mortgage rate, and so on so on.
Perhaps I am being a bit hard on your friend but really life would be simple if we could get by without at least some hard work and thinking about what we do before leaping in.
All I can say is there is bound to be a very happy investor out there ready to gain by buying a bargain at your poor friends expense.
Is there a D in there somewhere.Comment
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Booyah,
Can't your friend sell the place with settlement 43 days from unconditional date, and give the tenants 42 days notice (as per setion 51(c) of the RTA)?
Paul.Comment
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Hello SD,Originally posted by SuperDad
51(c) is for periodic tenancies only.
If the landlord sold the property with those conditions in (vacant possession and settlement 43 days from unconditional) and there was a fixed tenancy in place for another year, then the S&P agreement would be defective and the landlord would be in a spot of bother, to put it mildly.
He would either:
1/ Be unable to give vacant possession and therefore have to watch his late settlement penalty steadily go up and up every day, perhaps for another year, or
2/ Have to plead with the tenants to agree to end the fixed tenancy early, perhaps having to offer a sizable financial inducement, or
3/ Have to apply to the TT for an early release order perhaps in the knowledge that his own stupidity may not be seen as an unforeseen change of circumstances, or
4/ Have to plead with the buyer to walk away, perhaps involving another financial inducement, or
5/ Have to hope that a higher power will intervene to save the day, or
6/ Have to ask the agent (and possibly his lawyer) for recompense for putting him in that predicament because the poor old agent or lawyer had failed to check properly the status of the tenancy, and hope also that he had not intentionally mislead the agent during the marketing and sale process; had signed the S&P in his lawyers presence and had similarly not mislead the lawyer in any way; in each case thus weakening any claim he might have, or
7/ Be kicking himself for selling privately in the belief that he would be saving the agent’s commission, and then kicking his cocky little brother who that evening pointed out that by not using an agent he had potentially cost himself a lot more than the commission.
Just some evening ramblings from me.
xrisLast edited by xris; 23-07-2006, 09:07 PM.Comment
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Originally posted by Perry
Hello Perry,
This has been discussed to death on this site. I do believe there are ways to do it properly, in part or in full, but it is not that easy.
This example looks to me though like a very good example of the commonest mistake made by people who just put tenants into their own home and claim all sorts of costs.
The impediment to claiming interest as a deduction in this case is simply that the intention of the loan, if there is one, was to buy a home for the purchaser to live in. It is difficult in most cases to overcome that problem without going to a lot of trouble and effort. Simply changing the use of the property from personal to business is irrelevant to the intention of that original loan.
Doubtless others will comment further.
xrisLast edited by xris; 23-07-2006, 09:19 PM.Comment
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Xris,
I did not know that! (But then, there's a lot I don't know.) Could you please point me in the direction of the relevant sections in the RTA that deal with fixed term tenancies, and the conditions under which notice can be given? (I've been looking, but can't find these. But I'm not familiar with the RTA - I'm a "virgin" here.)
Once again, I'm struck by the feeling that the law's an ass. It seems odd that one can't sell a house in which reside tenants on a FT tenancy. The tenants in this case seem to become like chattels - items included with the sale. It also seems to place an unreasonable burden on landlords.
Learning all the time,
Paul.Last edited by SuperDad; 23-07-2006, 09:53 PM.Comment
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The law is not an ass. A lease is a valuable asset. It is a money stream for the period of the lease.Originally posted by SuperDad
That is why commercial properties with good leases in place are worth more than those with no or poor leases.
There is no reason why a residential property can not be sold with tenancy in place. In fact lots of them are sold this way. Unless the rent is below market rate I see little or no reason why it should fetch anything but full market value. In fact for some properties just like commercial properties it may in fact be worth more to the prospective purchaser.
The last thing us investors want is some law that steps all over our lease contracts and permits people to break their contracts. Goodness this is the start of a break down in our society and economy.
Section 50 (a) is quite clear. The tenancy is terminated when the term of the tenancy expires.
However section 66 deals with reduction of the term of a fixed term tenancy.
Without laboriously typing out the full section it states that the tribunal can reduce the term for either party if unforseen circumstances occur and if one of the parties will suffer hardship. However 66(2) states that compensation then needs to be paid to the other party.
Simply not using ones head and being imprudent can not be regarded as "unforseen". It might be unforseen by one party but to everyone else it is likely to be quite clear.
I guess we can all think of the unforseen things that can occur. Things like death, mental break down or loss of a job must be regarded as unforseen.
Discovering three weeks after the start of a tenancy that you can not afford to be a landlord does not wash.
We see lots of our tenants with this sort of affliction.
There is no excuse for a landlord to be similarly afflicted.
Remember what the "Lord" of landlord stands for.Comment
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Thanks Glenn for that very good explanation of the workings of a FTT. Now I understand why I sometimes see properties advertised with claims like "Fixed term tenancy until Jan 2007".Comment
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I wouldn't bother with a Fixed Term Tenancy because it binds the nice law abiding landlord but doesn't really bind the tenant! All the Tenant needs to do is stop paying rent and they will get out (the landlord will evict, tenant then pays dues so doesn't have a debt). Just not worth the risk.
For commercial it is a differant story mostly.Comment
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Originally posted by Wayne
What?!
Why not just burn the house down and be done with it - a lot simpler.Comment
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