This week we are looking to tie up a deal in W1. I have been tracking this property for about four months now. I was promised the deal by an agent, who couldn’t really deliver, we even went as far as the sale memorandum being issued and lawyers being instructed.
I liked the property as soon as I saw it, it is in a discreet block in W1, which I didn’t even know existed despite being in the area for over a decade.
The property had a shortish lease, I say shortish because a 56 year lease may seem short, but as far as Central London standards go this is acceptable, and surprising to most, mortgageable. Margaret Thatcher’s old flat in Chelsea is currently on the market for £1.235m and only has a 24 year lease. This equates to roughly £1,000 per sq. ft. for a 1,200 sq. ft. property. The lease extension has been quoted at £600k, therefore you would be all in for £1,600 per sq. ft.
I was speaking to someone in the industry, and it transpired that he was also going for the same property, contracts were already in and only the management information was remaining.
Only last week I heard everything was in and the deal is now ready to be executed at a price of £725k, the lease extension will cost another £150k. It’s worth going in hard to negotiate the lease extension costs down further, as there is an argument which can be made backed with selective evidence in this post Brexit environment.
Works are expected to cost a further £100k, for a top finish, and the valuation is expected to be over £1.2m. Not that we’re recommending a resale; it would be best to hold on to this property for three to five years, or even long term. It’s tough to get a 20% margin in this location, not only is this a desirable block, commanding strong resale figures and demand, it’s in the prime location of W1.
We feel this deal will go very quickly, as the location is aspirational and many people like the feeling of owning a piece of W1.
A deal we had on the table for £600k a few weeks ago is on the verge of exchanging for a higher price, the demand for property is still strong. This is why people all over the world choose to invest their wealth in London. Hesitation will lose you deals and money; please note that’s not the same as consideration. We had a client who signed up with us, and has viewed properties, but when it comes to doing the deal, he comes up with one reason after another for not proceeding. I counted a total of four in our last interaction. From the cash flow not being strong, to religious festivals getting in the way. The cash flow will never be strong in London, if you want cash flow you can go outside of London where yields of 10% have been reported. However, these properties will probably never rise in value in the same way as the capital. What’s more is he didn’t even need the cash flow.
If you want hard capital growth, then stick to Central London. Given the recent changes in Tax, capital gains might be more desirable.
Agony Agent
Each week, we answer a reader’s rental property question, from first-time landlords needing pointers about contracts to experienced owners. Agony Agent, is here to help!
Today’s question is an all too familiar one, and one I get asked more often than not.
Q. My tenant has sub-let without my permission, what can I do?
A. Unauthorised sub-letting is where it can go all terribly wrong, and it increasingly is. It typically works in two different ways:
1: Your tenant is renting out another room in your property without your permission
2: Your tenant doesn’t even live in the property, and has sub-let the entire place
Upon discovering that your property is being sub-let without your permission, first decide if it’s causing a problem, as it might not be worth rocking the boat if there are no negative consequences of your tenant sub-letting (e.g. rent is being paid and the property is being kept in good condition). If that’s the case, talk to your tenant about the situation.
In many cases, such a happy ending doesn’t exist. Many unscrupulous people make a living out of unauthorised sub-letting, and this is when the reality of the situation can be extremely challenging and complicated.
This is when your tenant draws up tenancy agreements for individual rooms and lets the rooms out separately to strangers, acting as if they are the real landlord. This can lead to a number of problems. First, the new sub-tenants aren’t aware of who the real landlord is. If there is a problem with the property, illegal sub-letters are unlikely to attend to them, and if they do, the problems aren’t usually resolved to a good standard. Secondly, most unauthorised sub-letting leads to overcrowding - this is because the sub-letter tries to cram in as many tenants as possible to maximize profit. Needless to say, an overcrowded property often leads to damage.
Regardless of whether your situation falls into scenario 1 or 2, you may want the sub-tenant to vacate, in which case you can do the following:
n Talk to the authorised tenant (AT) directly to try and resolve the situation - or at least make him/her aware that the jig is up. The AT may just admit defeat and close up shop;
n If that fails, the sub-tenants should be spoken to directly to clarify the situation as they may well be unaware of the circumstances themselves. They might be understanding and willingly vacate. However, if you and the sub-tenants are happy for them to remain in the property, cut out the middle man by going through the proper procedures to have the tenancy negated, then draw up a new tenancy for each resident. But under no circumstances should you accept any payment of rent from the sub-tenant until the matter is sorted.
n If you’re still adamant on removing the tenant/sub-tenants, enforce the term in your tenancy agreement if there is one, and warn the AT to remove the sub-tenant(s) or you will serve Notice to evict him/her because s/he is in breach of contract;
n If there is no clause, you could say your insurer/lender does NOT permit subletting, so the sub-tenant must leave;
n If that doesn’t work, you could try serving a Section 8 on Ground 12 to your tenant.
If you or your property has fallen foul of this situation, and you need some initial free advice please contact me at the office.
