Protected tenants - a no-go area?
THE QUESTION
Is purchasing a building with a protected tenant a good idea?
THE ANSWER
That depends on your vision of the future. If you’re in it for the long haul then maybe, but if you’re looking at it as a business decision you need to know the facts.
Regulated Tenancies pre-date ASTs (Assured Shorthold Tenancies) as the rental contract used between landlord and tenant. 1st January 1989 was the pivotal date when ASTs replaced RTs. Here is the big point - RTs that pre-date this retain all of the rights of the original agreement.
RT tenants have rights that AST tenants do not. Principally:
- Lifetime right to live in the property
- Protected rent that can only be increased with a bi-annual landlord request to the Rent Tribunal, which the tenant can (and usually does) oppose
- The ability for the tenancy to be passed to next of kin, providing they have also lived in the property for the two years previous to the current tenant’s demise, with 1 & 2 intact
RT tenants have an acute awareness of their rights under the tenancy. If they are still there, it is because they have fought off every big-time-Charlie's attempts to dislodge them over the past 30 years. Don’t think you can buy them off with a flash of the cash, they are strongly attached to their cheap rent and security of tenure.
RT’s are a finite resource - no new RT agreements have been created for over 30 years and those still in existence gets progressively smaller each year. The natural lifespan of RT tenants will lead to their eventual demise.
There is no mortgage lender that would touch this, even with someone else's bargepole. They are a cash purchase only and invariably sell for no more than 50% of the true market value.
Who buys them? Wealthy people as a legacy investment and a home for some of their spare cash. They don’t care about the low rent (often 25-50% of current market rent). They play the long game and are prepared to wait to reap the uplift in capital value when the RT eventually ends. This may even mean that the wait is so long that the property will pass to their children or grandchildren. These properties have been regularly bought at auction by such people for the past 30 years.
The question is - why do you want to buy this property? If you’re looking for a property that generates a short term profit, you can mortgage and recycle your cash deposit - this won’t tick any of those boxes.
