A lease for life is a lifetime tenancy agreement between the new or current owner of a property and a tenant who wants to lease the property until they pass away.
They are often exercised by investors who are looking for a long term capital growth investment as the property itself may not be income-producing.
It’s a risky strategy because you are relying on the housing market to guarantee you a return in the future however it is still attractive to some investors and could be beneficial if the property is located in a developing area.
A property open to a Life Tenancy Investment is often made available to property investors at discounted prices. An investor can purchase the property, and the ownership of the title deeds will belong to them. The lifetime lease will be in the tenant’s name, and when they pass away, the property goes back into the ownership of the investor. The Life Tenancy will end, and the investor is free to sell their property and get a return on their investment.
A lifetime tenancy ensures the person holding the lifetime tenancy has the right to stay in the property for as long as they are alive. After they have passed their property family can usually not sell or transfer any interest on the value of the property until the date of their death. Lifetime tenancies in the world of conveyance reflect both rewards and challenges.
How Does A Lifetime Tenancy Come About?
A sufficient lifetime lease may already be in place in government/council style housing where the property is being sold off to private sector landlords to represent that the person concerned inside of the property still has the right to stay in the there until their death.
For a variety of reasons, a property owner might have a lease for life tenancy drawn up for the first time themselves. In general, they want to live in the property they own until death and at a very low rental rate or no rent at all, but may have a strong desire to unlock equity invested in the property they owned.
For example, let’s assume they originally had an interest-only mortgage but hit the maturity date without completely paying off the debt. They may approach an equity release company who is willing to draw up such a lifetime tenancy in exchange for having a substantial or even complete equity share in the property that they will realise on the lifetime tenant’s death, for instance by selling on the open market. Still, They may not do so until this stage.
So a Lifetime Tenancy is a legal document that covers the ex-owner / incumbent and has to be drawn up by lawyers; depending on the circumstances, the person selling-and joining the lifelong tenancy-may well have to take independent legal assistance.
If a tenant does not want to move out of their home and has a legitimate lifetime occupancy agreement, it is usually exceedingly challenging to evict a tenant for life. This opens up a variety of various potential situations in the private sector, where regular buying and selling of freeholds with leasehold interests within them.
Should You Purchase Properties With Lifetime Tenants In Them?
You can purchase a property with a lifetime tenancy attached to it in simple terms because it’s much cheaper than buying a similar property without such a lifetime tenant in it. Still, you don’t have the full power to do anything you want with the dwelling right away.
The discounted rate for which the property would be sold for would depend on factors such as whether or not the tenant was expected to pay the rent and if they were, this is likely to be fixed at a significant discount on market rates-and the age of the tenant.
As you can not take complete ownership of the property until the occupant leaves the house-which you would presume is when they die, because you don’t know how long they will live for-this is why the house can be sold relatively cheaply.
The younger the occupant is, the higher the discount is likely to be on the property price since they are likely to occupy it for a more extended period.
As a result, the majority of skilled investors will view this form of investment as a medium to long term; however, it is an investment. Over time, all other things being equal, property prices typically increase, usually providing a decent return relative to different groups of investors.
It is a model in which equities release products from institutional mortgage lenders are structured in a somewhat similar way. Typically, such products either provide a mortgage without an end date or allow the occupant to release a proportion of the value of the property to live on and then live as a sitting tenant in the property until death without having to pay any additional rent.
Will Lenders Grant You A Mortgage To Buy A Property Involved In A Lifetime Tenancy Agreement?
In simple terms, most lenders will not grant you a mortgage to purchase a property with a lifetime lease, so this market is mainly the preserve of cash buyers.
The traditional mortgage market, whether residential, purchase-to-lease or business, operates on lenders paying a percentage deposit and then settling on a regular monthly basis to repay the entire amount lent over a fixed term and taking into account the prevailing interest rates levied on them.
Lifetime tenancies may vary considerably. Still, many do not include a lifetime tenant having to pay any rent payments whatsoever, those where rent is payable, as previously mentioned, are most frequently substantially reduced by the prevailing market rates. This means that the lender, or indeed the prospective investor, can not expect to obtain cash-flow from the property.
Hopefully, this article explains what a lease for life tenancy is and that you can take some valuable information from this if you are deciding to purchase a lease for life or if you are contemplating whether or not to buy a property which has a lifetime tenant already.