Purchasing HMO/Assisted Living Properties - what are the pitfalls?
With a substantial increase in the number of commercial clients purchasing HMOs or Assisted Living properties designed to provide care in the community, Claire Cooper, from our Commercial Property team looks at the background behind this increase, and the potential pitfalls.
Increasingly, responsibility is falling on the shoulders of local authorities who are tasked to provide care and support in the home, not only to release pressure on the NHS, but also to reduce costs, and provide better support to vulnerable people re-integrating into society.
In turn, this has led to an increase in the number of commercial clients who already providing care services in the community, but are now looking to purchase properties suitable for multiple short or long term tenants to live in a safe environment with onsite carers and appropriate care facilities.
Finding a property large enough and accessible with sufficient bedrooms and bathrooms (or the potential to add more) is challenging enough, but there are some issues causing clients problems which are not necessarily apparent when viewing a property.
Firstly, many residential properties have restrictive covenants in their title deeds, and since these are registered with the Land Registry, they only usually come to light during the legal process. For example, it is common, particularly on large housing estates, that a property is restricted for use as a single private dwelling, occupied by a single family. In going ahead with multiple tenancies in such a property, a purchaser runs the risk of action by a neighbouring owner which could result in the purchaser’s use being terminated, often after costly conversion or renovation works have been completed.
Equally common is the restriction on a residential property being used for a business – it’s important to remember that although tenants will be living in the property, and to them it is a residential property, the property owner’s use is very likely to constitute a business, similar to a small care home. Again, a purchaser would run a similar risk of having use terminated if challenged.
Another issue which may only flag up to a purchaser during the legal process concerns development rights. Results from a local authority search might show that certain areas are excluded from permitted development rights that would allow multiple occupation by 3 – 6 tenants. This means that a purchaser would need specific planning permission to allow multiple occupation. Obviously, this has cost consequences, would take a number of weeks to process with the local authority without any guarantee that planning permission would be granted. Again, if a purchaser proceeds without obtaining planning permission first, or without planning in place, they risk a local authority taking enforcement action against them, which could result in the use being prohibited. This can obviously have cost and return on investment implications for the purchaser as well as potentially impacting on the value or marketability of the property in the future.
Claire suggests that all buyers of property who intend to use the property for a specific purpose, particularly if it is not the same as its current use, should check the position with the local authority from a planning perspective before making an offer to purchase, and ask their solicitor to check the title to the property as soon as they are instructed, in order to identify potential issues at an early stage. Such issues do not necessarily mean that the purchase cannot go ahead, but certain steps which take time will need to be taken to try and overcome those issues.
For further discussion or information, please contact Claire Cooper or call our Commercial Property Department on either 01384 445850 or 0800 118 1500