As we are going through the conveyancing for a deal we have sourced for a client, something has come out of the woodwork.
The reality of buying property is that you do not really know what you are purchasing until the legals have been done. In one sense they act to diagnose the deal.
Of course externally you’re purchasing a building, but you do not know what issues will crop up with the building until the legals and survey have been done.
On this transaction, it appears the seller was aware of a potential CPO; what this stands for is Compulsory Purchase Order. This means the council has the right to forcefully purchase the property.
The council has this ability so it is able to regenerate areas without having a stubborn landlord who does not want to sell to deal with.
There is a vast difference between an intention of the council to issue a CPO and actually doing it. There is a possibility it may never occur, or that it may occur decades later when it ceases to be an issue. In the examples I have come across the price offered was supposed to be over 10% on the market price, yet the reality was it was more. Also, the properties were far from being in a fit condition for rental, and probably required around £50,000 of work in order to get to that stage.
We had a client for whom we sourced a property. The purchase price was £350,000 in 2009, it was purchased by the council by way of a CPO for £600,000 in 2022. On top of this he received another £45,000 as home loss payment. So, this client done okay; the CPO enhanced his investment substantially.
Furthermore, there are some advantages to be had from a CPO being in place. For one, he didn’t pay capital gains on his gains, which is a massive saving. The other, is if he purchases another property of similar or lesser value within 12 months, the council would pay for the legal cost and stamp duty.
This then takes the returns up substantially. Therefore, having a CPO in place may be a blessing in disguise, particularly if you are into trading property, in fact it would be worth purchasing in these locations for these tax breaks. It’s not often one gets to pay zero tax – legally, and then gets to do the next deal with immunity from paying stamp duty – including the 3% premium.
What may look on the surface to be a potential issue with the property, and a deal breaker, can turn out to yield a completely different result poles apart. The devil is in the detail, although in this situation it’s more likely an angel – perhaps Laxmi herself.
This is not something an agent would inform you of, you would need to do the digging yourself. My experience is most are ill informed of what they are selling; they work on the principle if they shovel enough some of it may stick.
Currently we are negotiating on a deal where the agent does not know whether the deal is standard or nonstandard construction. The construction of the property impacts the ability to get finance on the deal, which in turn governs whether one invests the full purchase price in cash or simply a fraction of it.