I Am A Property Developer – Ask Me Anything!

What a superb thread this is turning out to be. Thanks Tony and all the people asking him questions, I am following this thread with interest and will be promoting it again today.
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Hallo everyone. For those that don't know me I am a managing agent by profession but I also do quite a bit of development of property within our portfolio. I have portfolios of both buy to let properties and freeholds. Our family firm manages property for some of the largest freeholders in England, for right to manage companies, people who own a few freeholds and freehold companies where the lessees have bought their freehold. I also have a practise which has developed which specialises in lease extension work. I think this gives me a pretty rounded view of the market.

Some comments on the discussion so far:

If Edward is developing his large house into six flats then he needs to be careful when drafting the leases so they are "good" leases. The freeholder should have the benefit of a good ground rent and the lessees should have the benefit of a clear lease Some leases make a building almost impossible to manage. Our firm often gets involved at the development stage and will often buy the freehold before the development is complete or begin management if the freeholder wants to keep the freehold. We work mainly in London and the South. of England.

One of the biggest problems we have is with new builds where the work has been a bit shoddy and lessees want problems rectified long after they have bought their flat. The NHBC and Premier guarantees are really very limited and sometimes it is very difficult for lessees who are left with problems in a property where the developer has sold the freehold and basically washed his hands of the deal. It's not an issue here but some of the biggest problems we have seen are where very futuristic designs are incorporated for roofs and they then leak because whilst they might be fabulous in Florida they are simply not fit for English weather. These sorts of problems cause large expense for lessees

As far as Josh's questions are concerned if the garden is demised to the lessee or the loft is demised to the lessee the salient point is whether or not the lease says that permission "cannot reasonably be withheld". The general view of lawyers and managing agents is that if this is the wording then a premium cannot be charged but if this wording is not present then a premium is payable. I do quite a lot of this stuff each year and always try to set the premiums reasonably. I ask any lessee applying for this type of permission to obtain three valuations of the current value of the property and the value when the extension is built and then I use this information along with other variables such as the type of property and the length of the lease. I have to confess that sometimes I do look at whether the flat is someone's long term home or a speculator who has bought the flat and is looking to "turn" it at an enhanced figure - if the next question is how do I know? - my answer is 23 years of experience!!!

I really do think this is a valuable thread and I sincerely hope it does not go the way of some others which have turned into opportunities for landlord and managing agent bashing.

The only other point I would make so far is that Mark is probably right about using the best professionals you can as accountants, lawyers, etc. Property people need good accountants and I would rather travel once a year to see someone good as Mark says. As far as lawyers are concerned we use different ones for different areas of work; one who deals with simple purchases, one who specialises in collecting service charge and yet another for Trust stuff. Whoever you use don't take your eye off the ball, question what they say and don't be hurried into a decision.

Hope I can help along the way.

Reply to the comment left by "Mark Alexander" at "02/11/2013 - 12:16":

This is a good question. Another question along with this I would like to ask is about the business structures that are suitable for property developers. i.e. Ltd Co, LLP, sole trader, Partnerships etc. From the Tax point of view as well as from the operational point of view.

Thanks for the advice Annette

I am currently a landlord of 2 buy to let properties (no equity in either). I don't have my own residential property but am looking to purchase property with a view to refurbishing then hopefully selling on for profit. I do have some cash in the bank but wanted to try and keep that in the bank. Can you recommend any methods in which I can purchase then refurbish a property with minimum outlay?
I was looking into bridging finance and may be able to have additional security (the person is a home owner with no mortgage).
Any suggestions greatly appreciated. Thanks

Reply to the comment left by "Annette Stone" at "03/02/2014 - 09:17":

Annette, what an excellent post! Thank you so much for clarifying whether or not a premium is due if the lease contains that clause about permission not being reasonably withheld.

I have received conflicting advice about this before (even from the Lease Advice service which is normally extremely helpful) so it's good to finally get an informed and conclusive expert opinion.

Thanks for the kind words Josh. If you have found yourself with this problem you should still show the lease to either a solicitor or let me see a copy (if you are happy to accept an informal opinion) as there may be other clauses to take into account. Particularly if the lease is an old one you may find there are contradictory clauses. For instance, the clause about permission not being reasonable withheld may be there and yet there may be a clause about any development potential belonging to the freeholder. That's why you might be getting conflicting advice!!!

Reply to the comment left by "nikesh chauhan" at "03/02/2014 - 11:18":

Hi Nikesh

From what you have said I don't think property development is the right business for you to be in. Let's see what Tony thinks.
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Reply to the comment left by "Thiru Vasagam" at "03/02/2014 - 09:56":

Hi Thiru

My professional advisers say Ltd Companies and LLP's are the way to go for development work because all profits are taxed as income as opposed to income and gains. This is the opposite to long term BTL strategies where there are far more tax breaks for personal ownership as a sole trader or traditional partnership.
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Could I just make a point here for all the professionals providing answers to various questions and that is that we are all doing this based on our advice and our experience but that none of us are covered by our Professional Indemnity Insurance for any advice we might give questioners. I think this is really important, particularly if people start asking for advice on which they might rely when obtaining funding or buying property. I am always happy to give general advice but had twice had to stop giving advice by e mail when it became clear that the people asking me very pointed questions wanted to avoid taking advice from lawyers to save money.