A Question of Property - Ep 13 - Paul Mahoney, Stefano Lucatello & John Howard - Nova

A Question of Property – Ep 13 – Paul Mahoney, Stefano Lucatello & John Howard

Lucia France:

Hello everybody, and welcome to our 13th episode of A Question of Property. I’m your host, Lucia France, and I’m joined by our usual panel of experts here today.

Lucia France:

John Howard, property expert of over 40 years experience, and also of three different books on the subject including Buying and Selling at Auction. John also has several horses. Welcome to the show, John. How are you today?

John Howard:

I’m glad you mentioned my Achilles heel. Thank you for that.

Lucia France:

No problem, anytime. We also have Stefano Lucatello, senior partner at Cobalt Law International Property Lawyers. Stefano is also a wonderful cook, and it was his birthday this week, so happy birthday, Stefano.

John Howard:

Happy birthday.

Stefano Lucatello:

Thank you.

Paul Mahoney:

Happy birthday.

Stefano Lucatello:

Thanks, Paul.

Lucia France:

And of course last but not least, Paul Mahoney, our voice of reason within the panel. Best selling author, award winning property speaker, and head of Nova Financial Group, and dad to Frankie how is two I believe, and I think she’s hoping to make another appearance on TV here today isn’t she.

Paul Mahoney:

She is two, and she’s constantly saying now, “Daddy, I want to be on TV again.”

Lucia France:

Aw, bless her. We’ll have to get her on a bit later.

John Howard:

Like in fact she’s just like her father.

Lucia France:

You might been on time as well. That would be good.

John Howard:

Yeah, exactly.

Lucia France:

Okay. Guys, we’ll start off with a general question to everybody here today. Who is your inspiration in business, and in life in general? That one goes to John first.

John Howard:

I think it has to be, and it’s nothing against my father who was a wonderful, kind man, but I think it has to be my grandfather because he managed to own a shoe shop, and from that shoe shop him and my grandmother saved enough money for all three of their grandchildren to go to private school. I think that’s a fantastic achievement, and there’s a longer story to that, which I’ll tell you one day, Lucia, but I think it would be my grandfather.

Lucia France:

And is that for both.

Stefano Lucatello:

A load of cobbler, John.

Lucia France:

What was that, Stef?

Stefano Lucatello:

A load of cobbler.

John Howard:

Say again.

Lucia France:

A load of cobblers, oh God.

Stefano Lucatello:

A load of cobblers.

John Howard:

Well, he wasn’t a cobbler, and in those days a pair of shoes cost a weeks wages for one man in those days. One pair-

Lucia France:

And so-

Stefano Lucatello:

Shoes were made properly then. They were properly what they call welted, and sewn, and whatever else.

John Howard:

Yeah, absolutely.

Lucia France:

So, you would say that that was your inspiration, John, for both-

John Howard:

Without question he was my inspiration really because he did so much to help my father. He helped me an awful lot as well, but they sacrificed so much for their grandchildren to go to private school, and have a great start in life, and I don’t think you can ask anymore than that from anyone.

Lucia France:

Fantastic, thank you. Okay, Paul, what’s your answer to this?

Paul Mahoney:

I’ve been racking my brain. I don’t think we can go much further past John, can we? 40 years to the industry.

John Howard:

Well, that’s very kind of you, Paul. I was-

Paul Mahoney:

Still alive and kicking these days.

John Howard:

I was going to mention it, but you’ve mentioned it already, so I’m delighted, thank you.

Lucia France:

Excellent answer, great stuff, and Stefano. What about yourself?

Stefano Lucatello:

Well, as I say in my book [crosstalk 00:03:20] there-

Paul Mahoney:

There you go.

John Howard:

That old chestnut.

Stefano Lucatello:

As I say in the acknowledgements it’s my mother. She’s my inspiration, whether it’s been kicking me to get something done, or pushing me. She was the one that decided to send me to private school education. My father was against it. She wanted to send me to private school because she was a teacher in state school, two state schools, and she thought that it was good for me to go to a private school. I’m not so sure that that was the best idea. I’ve not always been happy at private school, but there we go. She’s my inspiration. Still at the tender age of 91 she still kicks me, and tells me what to do, good Italian boy.

Lucia France:

That’s lovely, awesome stuff. Thank you for all of your answers there guys.

Lucia France:

Right, we’re going to move on to our questions from the viewers. The first one here today is for Paul.

Lucia France:

Paul, I’m considering investing into a fund that invests in a property bond. Could you please explain in more detail what this is, and whether they are assigned idea, or not?

Paul Mahoney:

Okay, yeah, so what a property bond is is developers will raise money from individual investors to help them fund their development. I’d be very careful when investing in a property bond to make sure that it’s with the right developer. The only real reason that we, as a company for ourselves and for our clients, get somewhat comfortable with some property bonds is because we do thorough due diligence on developers, and get comfortable with the fact that they are I suppose financially robust enough that they have a good track record, that their debt to equity across their assets is sufficient, all those sorts of things. Whereas, you do see in the market some developers that have none of those things are raising money, which of course can be higher risk. It will make the investment a much higher risk.

Paul Mahoney:

So, in the right circumstance a property bond can be good because effectively what it does is it gives an individual investor access to much higher returns because effectively what you’re becoming is a development lender. Developers raise money to fund their developments. Quite often they’re paying somewhere between half a percent, and 2% a month for development finance. That usually ranges depending on their experience, and their asset position. John’s paying probably less than half a percent a month because he’s very experienced, and he’s wealthy. Whereas, less experienced developers are paying much, much more. Sometimes these property bonds can stack up well because they give a good return, quite often around sort of 10% plus per annum, which for an individual investor is a very, very good return when you are investing your money with it being “guaranteed” to be returned by that developer. I say “guaranteed” because it is guaranteed by the company, but if the company goes bust that guarantee doesn’t mean anything, so you do need to be careful with this type of investment, but if you are very confident in the developer, their track record, their asset ablution, the fact they’re going to deliver on their promises then it can make a good investment.

Lucia France:

Okay, so in terms of what you would suggest an individual does I guess it would depend on their experience as well within the market?

Paul Mahoney:

Not so much the individual’s experience I wouldn’t have thought, but much more… Essentially what you’re doing is you’re lending money to a developer, so you need to be very confident that developer isn’t going to go bust. Otherwise, your money is potentially at risk.

Stefano Lucatello:

You need some robust legal documentation don’t you, Paul?

Paul Mahoney:

Well, the legal process is a lot less involved in buying a property for example. You definitely do get some legal documentation to say that effectively you’ve lent them this money. Different developers structure it different ways, but generally you will get a sort of debenture, or security across the developer’s assets, which are usually development sites, and you need to understand what that actually means, and what would be the situation if that developer were to go into administration. Consider your downside, but if you thought there was any chance of that with that particular developer you should not be lending them the money.

John Howard:

No, but can I chip in a couple of things?

Lucia France:

[crosstalk 00:08:12].

John Howard:

Basically, this is a high risk investment, so they’re considered high risk investments. Although, they don’t necessarily need to be. Of course, you’re not paying any stamp duty, so that’s one advantage, and most of them should be FCA regulated. If they’re FCA regulated you can put your pension into it, or your SIP into it as well, so that gives you… You may want to put your pension money in not your own cash if you get my meaning, not private money. You’ve got a pension. You can put some of that money in, or you can put your SIP in, so there is advantages to do so on occassions, but it just depends whether you want to be hands on really with the investment, and do it all yourself, or whether you’re happy to say, “Look, here’s 30,000. I’m getting 10% yield on it. I’m happy for someone else to have all the worry, and the hassle.”

Lucia France:

Would you say, John, as well as Stefano said, that legal advice is key?

John Howard:

Yes, if it’s a bond it’s regulated by the FCA, so it’s all been checked, and thoroughly checked, and it’s a professional document, which your financial advisor needs to, someone like Paul, can obviously help you, needs to go through it with you, so you completely u’ what you’re doing.

Lucia France:

Okay, thank you very much.

Lucia France:

Right, let’s go to Stefano. Your first question for today is in Europe is there an equivalent to our buy to let market in the UK with the same types of funding options?

Stefano Lucatello:

Every country you can buy a property and rent it out, so to that extent, yes. There is the same sort of market. Funding options, I’m not sure what you mean by funding options. You can get a mortgage abroad on the basis that you intend to rent it out, but rates abroad don’t usually depend on whether you’re buying it for personal use, or for renting it out. There is not this differentiation in France, Spain, Italy, Portugal that we have here, so yes. You can go to a bank and say, and I think in many ways it will be treated as a commercial loan as opposed to a buy to rent if you see we’re doing a buy to let.

Stefano Lucatello:

So, it does exist, but it exists in a different format. The interesting one is France where you can, and I’ve done many of those over the years, where you can actually buy a property usually in the ski villages, in the ski chalet areas, buy a chalet, and you then rent it out for 11 year continuous periods to a tour operator, like TUI, or Thompsons, or [crosstalk 00:11:04].

John Howard:

That’s a good idea.

Lucia France:

Okay.

Stefano Lucatello:

And there are tax advantages to that because when you buy a new property you don’t pay stamp duty. You pay VAT, or TVA as it is in France. So, as long as you rent it out you get your TVA back, but you have to rent it out for at least 20 years to be able to get the full VAT back, so if you were to stop 10 years in you would have to repay 50% of the VAT that you had actually been paid back, but that’s a good idea because it’s good. Well, until COVID it was a secure way of getting your rental income. What would happen is it was a contract. You buy it. Then you immediately rent it out through the management company. You rent it out to TUI, or whoever. They take it on 9, 11, or usually 13 year running contract, and you can use it. You can choose how many months, or weeks of the year you can use it, usually four to six weeks, or eight weeks at the most. Of course, the less you rent it, so the less you use it the more rental back you get.

Stefano Lucatello:

Every year they have to, or every three or four years, TUI has to change the fittings, and fixtures because usually what they do is they buy, or they rent 2 or 300, 3 or 400 of these, so when they change the fittings they change them throughout all the properties, so everyone is up to their standards. You know that if you go into ski chalet A, or ski chalet B, different resorts, you get the same things, and the same level of fixtures and fittings. To that extent France is very much more advanced than Italy, Portugal, Spain in that respect, but going back to the original question. Yes, you can do a buy to let, but it would be more of a commercial loan rather than a buy to let mortgage if you’re going that way.

John Howard:

Okay, it’s interesting that isn’t it, that fancy that, and that would not be called rent to rent of course, which is the new term everyone’s using, and you’ve got massive companies, like TUI, and other people been doing it for years, and years, and years, and years.

Stefano Lucatello:

Yeah, absolutely.

Lucia France:

Stefano, I have a quick question. You know we’ve talked before about in certain places in Europe you can rent the property as you’re thinking of buying it. Would that be worth doing in this situation? Then they actually, whatever you’ve paid into as rent they get rid of some of that money in terms of the purchase price.

Stefano Lucatello:

Certainly if it’s your intention to move across to a country as a permanent fixture then we’ve always said this. The first thing to do is never to buy. It’s to identify the locality within the region, and rent. If you’re lucky enough to be able to spot a property, and negotiate a deal with a person then my view is entering into a rental contract for 6 to 12 months, and negotiate that the rental that you pay is deducted off the eventual purchase price because otherwise rental money is dead money to a renter. The only benefit is to the owner of the property, the freeholder of the property, so that extent, yes. But, I mean it’s a buyer’s market at the moment, and it’s not a seller’s market, especially abroad. I would think that if you’re a buyer, or a renter you’ve got a good market to go at.

Lucia France:

Great, thanks, Stefano.

Lucia France:

Okay, John, let’s move to you for your first question for today. I would like to start buying property at auction as I’ve heard there are great bargains to be found. You have written a book about buying at auctions, so can you give me-

John Howard:

I have.

Lucia France:

You have indeed. Can you give me some advice about buying at auction, such as what I should do before attending, and also the pitfalls of buying at auction? I guess buy your book, John.

John Howard:

Well, you stole my line there.

Lucia France:

Sorry.

John Howard:

I’m very cross. You stole my line. Yeah, obviously buy the book, and come on a seminar about it as well, but what I would say. The whole point of a property being at an auction is the first thing you want to know is why is it in that auction. Why is it in the auction? So, you need to do your research, and find out why it’s there. Once you know why it’s there then you know whether it’s a problem you can solve or not. It might be that the person’s just died, and then family think it’s the best way, which it is by the way, of selling a property probably in poor condition, or elderly conditions I call it, and it might have nothing else wrong with it.

John Howard:

On the other hand, it could have structural problems. It’s probably been with an estate agent to start with, and then ended up in the auction after say three abortive sales on it. One of the things I always do is go and see the next door neighbor because the next door neighbor will tell you more than anyone else about the property, especially if they was nosy as my mother used to be with the old net curtains. They will tell you who owned it, or who owns it, why hasn’t it sold, all sorts of things, so go and see the next door neighbor. Make sure you do your legal research. In other words, you get a lead you can download the legal pack. Don’t think yourself a solicitor, and you can afford to… You can’t afford not to get some legal advice. You can look at the legal pack yourself, but unless you’re trained by a lawyer, trained to look at it, you need to pass it over to your solicitor how needs to advise you whether there’s any problems in there.

John Howard:

One of the things that people do with a property sometimes is make sure that legal pack arrives very late before the sale, so you haven’t got time to look at it, or they might not complete the legal pack. So, they’re may be something missing in a legal pack that your solicitor will flag up, and that’s probably because they don’t want to tell you what’s in there, everything that’s in there. There could be a problem in other words, so that’s so important.

John Howard:

The other thing that’s obviously pretty obvious, but people don’t do this, is make sure you get your finance ready before the auction. Don’t go into an auction without your finance, without having the legal pack understood, and without viewing the property, and understanding what the problem is with the property. They’re the four things you need to do in the space of five minutes. There’s lots, lots more, and when you come to buy you don’t have to buy in the actual room on the day. You might want to buy it prior to auction. My favorite is buying after the auction, and in my seminars you go through all that, and much, much more.

Lucia France:

Okay, do you know of any cases of people where they have been gone to buy a property, and not even having viewed it, or know anything about it?

John Howard:

Let me tell you, Lucia. You cannot believe the amount of people who go to, and I always say, “Go to the property. Go to a few auctions first just to get a feel for what’s going on, get confident about the area, and surroundings, and what happens.” I can’t tell you how many people go to an auction not with any intent, no intention of buying whatsoever, stick their hand up on a property because they think it’s cheap, without having the funding, without looking at it, without any research on it. I can’t tell you how often that happens, and in fact my first property I ever bought at auction in London when I was 21 I did the same thing. That’s why I know never to do it again.

Lucia France:

Did you buy it? Did you-

John Howard:

Yeah, I bought the damn thing, and luckily for me I managed to… There were some problems with it. I managed to whack it back in the auction, the next auction, and got my money back, but not everyone’s as fortunate as I was.

Lucia France:

Wow, that’s a good lesson to learn at the start of your career I guess.

John Howard:

Very good lesson, very good lesson.

Stefano Lucatello:

What’s the book called, John?

John Howard:

Buying and Selling at Auction. John Howard’s Guide to Buying and Selling at Auction.

Stefano Lucatello:

Can I have an autographed version please?

John Howard:

Yes, of course you can. I’ll palm one in the post to you. I just need 9.95 plus post and packing off you first.

Lucia France:

Brilliant, right, let’s move back to Paul then. We’ve got your second question here, Paul.

Lucia France:

My family want me to consider buying a holiday home as a long-term investment, which will also be somewhere that the family can go on holiday. They suggest that I do this instead of investing in a number of buy to let properties. What is your view please?

Lucia France:

I’d say that’s not up to your family is it, what you do with your money?

Paul Mahoney:

Well look, I think when it comes to personal decisions you should try to separate personal benefit from investing. We get asked questions like this all the time, whether it be a holiday home, or a place you might want to retire to at some point in the future, or somewhere that you might want to live if you move cities, but nothing’s planned, the whole range of things where people try to align their investments with potential personal benefit. Our advice, 99 times out of 100 is to completely separate those two things because they all very rarely align. Investing should be unemotional, commercially minded. It should be about making money. Whereas, personal benefit, or emotional decisions is very different to that.

Paul Mahoney:

Now, to this particular person they’re receiving pressure from their family to buy a holiday home. Well, they need to decide whether they’re happy to do that or not because a holiday home, probably 9 times out of 10, probably won’t be an awesome investment. It might be. They might be able to short-term let it. They might be able to holiday let it. Maybe, but also maybe not, and that, episodes if they’re talking this holiday destination in the UK. They didn’t say UK or otherwise, but let’s say it is one of those more holiday destinations in the UK. As we know the UK is very seasonal, and those holiday destinations are only popular for a very small portion of the year, so it’s going to be difficult to rent that place when it’s raining, or when it’s winter for example. When it’s sunny you’re probably going to want to be there yourself. It may not be a great investment, and you probably shouldn’t think of it as one.

Paul Mahoney:

Whereas, if you’re investing in buy to let that’s all about making money, improving your financial position, and I suppose my biggest question for this particular person would be can you afford a holiday home. Can you afford to allocate X amount of money because you’re in a good enough financial position to do that, or do you still need to improve your financial position to be in a good financial position? I would say for most people the answer would be the latter. Given their asking the question, for someone who can afford a holiday home they wouldn’t bother asking the question. Most people invest property, or anything for that matter, to improve their financial position, and provide for themselves, and their family at some point in the future without having to rely upon their employment income. It seems, given the question, that’s probably the position this person is in, so depending on how important this holiday home is to them I would be sitting down with their family, and saying, “Look, this is the reality. Stop being silly. We can rent a holiday home three times a year from Airbnb, and it will cost us a fraction of buying one,” so there’s no point in having [crosstalk 00:23:14] point-

John Howard:

Yeah, I think, Paul, you might have a really good point there.

Lucia France:

Yeah, absolutely.

Paul Mahoney:

There’s no point having loads of personal assets that don’t strongly contribute to your financial position, or improving your financial position. Everybody’s got limited resources. John’s loaded. Stefano drives a Maserati, but they are still limited in their resources. We’re all limited regardless of how wealthy we are. We’ve only got so much to allocate.

John Howard:

Absolutely. Paul, you don’t know how limited I am. I can assure you. The one thing I would say he’s absolutely right. It’s probably one step too soon for me. Buy some buy to let properties. Get some income coming in. Then buy your holiday home. Don’t be dictated… The amount of people I know, relatively wealthy people, are dictated to by their children. It’s unbelievable. They dictate all sorts of things to-

Stefano Lucatello:

It shouldn’t be allowed. It’s dreadful.

John Howard:

… [crosstalk 00:24:12], and it amazes me, absolutely amazes me. Half these kids have made no contribution to society whatsoever so far. They’ve paid no tax, no nothing, nothing else, and they’ve got the biggest opinion of everyone. You could argue that they should-

Stefano Lucatello:

Send them down the pit when they’re five.

John Howard:

You could argue that they shouldn’t be allowed even to vote in this country until they make a contribution-

Stefano Lucatello:

This conversation’s going the wrong way, John.

John Howard:

Until they make a contribution to society, and that is paying taxes. If you pay taxes you should have a vote.

Stefano Lucatello:

Sounds like a conservative manifesto.

John Howard:

If you don’t pay taxes you probably shouldn’t have a vote.

Lucia France:

We really are going off-

Paul Mahoney:

Let me caveat what I’ve just said there. So, I’m actually at this very point in time looking at buying a holiday house in Australia on the south coast of New South Wales, but the reason, and I’m looking at doing that with a friend, and it will double up as a holiday destination for our families, but at this point in time the properties there are really well priced, and they will rent extremely well through the likes of Airbnb, and Booking.com, pretty much all year round because the weather’s much better in Australia.

John Howard:

Nice.

Paul Mahoney:

In that circumstances that can work, but it seems from the way the question’s phrased that they’re being pulled between a very personal family decision that would take their limited resources away from being able to invest.

Stefano Lucatello:

Why don’t they buy a property in France like I said in my previous question where they can have the best of both worlds? They can have brilliant weather. They can use it for themselves a part of the year because we all know that usually you don’t have anymore than four or five weeks at the very most holiday. Then you can get a rental income for the rest of the year.

John Howard:

Perhaps they, unlike you two, are very proud of Britain, and want to purchase a property in some of the most beautiful, iconic scenery in Britain that we have.

Lucia France:

They’re obviously-

Stefano Lucatello:

How shortsighted that is, John.

Lucia France:

Well, with COVID going on who knows. It might be very, very wise to buy in the UK anyway.

Stefano Lucatello:

Just one last thing. Paul, when you buy that property in Australia, and you’re buying it with your other mates it’s almost like a timeshare, so you need to make sure that you enter into proper agreements as to who uses it when. For example, if you want to go and use it because you’ve got the summer at Christmas, if your family wants to use it across Christmas, you need to be alternating, and make sure that u agree who’s going to be using it.

Paul Mahoney:

I do agree with you, Stefano, but I don’t think it necessarily applies to us. It’s my best mate, so we can sort it out.

Stefano Lucatello:

Best mates always become problems if you don’t sort agreements out, Paul.

John Howard:

To hell, they all say that don’t they, Stefano? They all say that. The whole point of agreement is that it sits in the drawer. Hopefully you’ll never have to get it out, Paul, but if you do you know you’ve got a problem, but at least you can sort it out. Please have an agreement whether you think you need one or not would be my advice.

Lucia France:

Well, John-

Stefano Lucatello:

The number of people, Paul, over the years that I’ve acted for who have gone into business with their best friend, and they are best friends when they come and see me, and they say, “No, we don’t need a shareholder’s agreement,” and six months later, a year later they’re in front of me again saying, “I hate him or her.”

Paul Mahoney:

No, I completely agree. I am in business with friends, and we do have very detailed shareholder’s agreements, and I agree with everything you’re saying, but to be honest one property on the staff goes to Australia means they’re going to say, “Are their wrists broke?” So, I think we’ll be okay.

John Howard:

Well, when he gets divorced, and the ex-wife wants half of it, and all the rest of it don’t come back to us crying, Paul.

Lucia France:

Well, let’s hope that none of that happens, but this actually brings us on really nicely to the and then question for John, which is about getting together with friends or business partners. This person says they’re looking to get together with a business partner in order to start purchasing properties. They have both purchased properties separately in the past, so what should they be looking for in a joint venture partner?

John Howard:

Well, in most joint venture partners, or the ones I’ve been involved in, I always go for financial partner as I’m doing the property, so there’s little point you both doing the same thing. If you’re both the investor you need a doer. You need someone to actually find the deals, do the deals. If you’re both a hands on and do the building work you doubling up all the time, so ideally your business partner would either be one or the other not similar because if you’re similar you don’t really need them. Normally you’d have a financial backer, then someone out there doing the deals. But, like we just said, whether you know them really well or not have a shareholder’s agreement. Put it in the drawer. Hopefully you’ll never have to get it out. I’ve got shareholder’s agreements with joint venture partners after 30, 35 years, and I’ve never had to get them out of the drawer. I wouldn’t know where they are now to be fair, but, which could be a problem, but I’ve never had to, but the fact it’s there makes so much difference, and it’s professional. It’s the proper way to do things, and you want to be professional, and actually don’t be embarrassed about, especially if you know someone well. Don’t be embarrassed at asking, “Well, we should have a shareholder’s agreement” because at the end of the day they should appreciate that it’s the professional way of doing it.

John Howard:

The one thing people seem to always forget when they go into business with partners, and with friends is that it’s a business. It really is a business, and a lot could go wrong. They could die. Your partner sadly could die. You could die. There’s lots of situations where you need to look at that agreement. Say, “Right, what happens now?” In the future, if something doesn’t work out, so please, please, have a shareholder’s agreement, and make sure that the partner you’re with is financially secure. Do some legal checks on them. Make sure they haven’t got some checkered history. You will be amazed, and Paul will tell you this I’m sure, the amount of, and Stefano, the amount of people who invest in other people without checking them out thoroughly, and finding they’re a bloody disaster area, so please. Do your due diligence. There’s nothing wrong with checking people, and making sure they are what they seem to be.

Lucia France:

I imagine there must be quite a few horror stories you’ve heard, Stefano, in regard to this.

Stefano Lucatello:

When people go into joint venture agreements they seem to leave their brains behind. It’s like most things when people go into some form or partnership or other. They’re-

Lucia France:

Like marriage.

Stefano Lucatello:

Yeah, [crosstalk 00:31:07]

John Howard:

You said it, Lucia, not us.

Stefano Lucatello:

You’re carried along by this wake of enthusiasm, and you forget a lot of simple things along the way, so when you enter into a joint venture agreement usually one person brings the know-how, but doesn’t have the money. Then you get someone like John who’s got no know-how, but he’s got a lot of money, so you put those two together, and…

John Howard:

That’s the opposite way around actually, but there we go.

Stefano Lucatello:

All right, John. And, you put them together, on a serious note, you put them together, usually scientists, and financier, development, that sort of thing, but sometimes people forget, and shareholder’s agreement, joint venture agreement, they are fundamental to people because, as John said, you hope you stick them in the drawer. They never have to see the light of day again, but it solves more when you don’t make an agreement then it’s down to me, and it always costs so much more to sort it out because you have to go through a lawyer rather than put it in the forefront of your ideas, and then deal with it straight away as opposed to dealing with it when it’s a problem.

Stefano Lucatello:

Yeah, whatever John says, and Paul says I’m fundamental on. However simple, do it.

John Howard:

Yeah, definitely.

Paul Mahoney:

Yeah, just a couple of things to add to that is if you’re going into business with somebody, or into an investment with somebody you need to make sure your timeframes, and your preferences are aligned in that we meet with a lot of people who are planning to invest with their parents for example. Quite often the issue that comes up there is if you’ve got a 25 year old person, and a 55 year old person their timelines are very, very different. The 55 year old person wants to retire within 10 years. The 25 year old person has a 25, or 30 year investment timeframe. Therefore, what happens in 10 years? That’s probably the very least discussion that needs to happen. We also get a lot of people that want to invest with their friends, and again. You need to make sure that the timeline’s is… When it comes to investing in property it’s a long-term thing. Aside from perhaps if you’re doing a property development. It’s going to take you 12 to 18 months. That’s a little bit different, but if you’re investing in a property together you’re usually looking at a 7 to 10 year plus timeframe, and a lot can change in that timeframe.

Paul Mahoney:

So, you want to make sure that you, at the very least, had a discussion around what happens if one person wants to get out, or has to get out, and also keep in mind that-

Stefano Lucatello:

The shareholder’s agreement needs to have that. The shareholder’s agreement needs to have the exist strategy, whether it’s retirement, expulsion, death, selling. Agree the timelines. Nowadays 25 year olds want to retire tomorrow, nevermind 20 years, Paul, John.

Paul Mahoney:

The other thing to keep in mind is-

Lucia France:

[crosstalk 00:33:55] now, guys.

Paul Mahoney:

So, the other thing to keep in mind is if you buy a property with a mortgage with a friend, or a family member you’re not half liable for that mortgage. You are jointly, and severally liable, so if the other person walks away you’re liable for the whole thing. You need to be conscious of that as well, and just on the shareholder’s agreement thing. Don’t Google JV shareholder agreement, and use a template. Speak to someone like Stefano, and get a proper agreement fit for purpose.

John Howard:

Yeah, speak to a professional.

Lucia France:

So, on that note it wouldn’t help these people then if they just sat down, and like you say, found a document online, and both typed it up, and both signed it. Would that help in anyway, Stefano?

Stefano Lucatello:

Well, it’s like going online, and downloading a will precedent. Precedents, don’t ever be a slave… I was always taught as a lawyer never be a slave to a precedent. Yes, it’s a starting point. Yes, use it as a checklist. Yes, start, read through it, and use it as something that will make you think of other things, but don’t use it slavishly and sign it because usually they are a starting point, and everyone of us, if we were to be given the same scenario we’d be looking for different things. We’d all have recurring themes through it, but we would all have differences because of age, because of whatever, and you mustn’t do that. They are there for a purpose. They are there to be downloaded, and used as a checklist, as a starting point.

Lucia France:

Great, okay, thank you, Stefano.

Lucia France:

Okay, Stefano, you’re last question for today is this. Which country in Europe has the simplest legal system for purchasing a property? This person says that they’re being put off purchasing by the fact that it seems really complicated, and time consuming in a number of different countries, so any advice on that one?

Stefano Lucatello:

Well, the first thing to say is that buying property abroad is a totally different bag of fish. I don’t know what the expression is from buying a property in the United Kingdom. Just because your John, and Paul, and your experts in United Kingdom property doesn’t mean to say you’re automatically an expert in buying property abroad, and this is the starting point. Many people who are experts in buying property in the United Kingdom automatically think they’re property buyers, experts abroad, and it’s not the case.

Stefano Lucatello:

The easiest… Well, the other thing to say is that civil law applies. They have something called Napoleonic Code abroad, which is Roman law, and it’s a totally different system of law from what we’ve got in common in the common law system that we have in the commonwealth countries like Australia, New Zealand, United Kingdom, whatever. That’s the starting point.

Stefano Lucatello:

The other point here to make is that you must always have an expert, whether you have an expert like me in England, or whether you have an expert over there you must have an expert. If you’re buying off plan, or you’re buying through an estate agent my view is that you should never use the estate agent’s choice of lawyers. You should always have an independent lawyer, and you can get them from forums, or from the local law societies in different countries, and cities, whatever.

Stefano Lucatello:

Having said that as a general starter I would say that France is probably the easiest of all the countries, and it’s also the most consumer protectionist country as regards to buying of a property. I can tell for why. The procedure for buying property abroad is broadly the same. You enter into a reservation agreement. It takes if off the market. It shows a sign of goodwill. The estate agent’s happy because he knows he’s about the sell something. You then have a preliminary contract, and [French 00:37:33]. One of the types you can have is a dual contract. It’s called a Compromis de Vente, and as opposed to a unilateral one. Be careful. In any European country you can have a bilateral contract, which is like our contracts in England. Two people sign, and there isn’t an exchange, but there is sort of an exchange, or there is a unilateral contract, which is a Promesse de Vente, or Promesse d’achat, a promise to buy, or a promise to sell, depending who signs it, and the promise to buy is a unilateral contract, but it binds you, so you are bound for 14 days. The vendor can decide within that 14 day period whether to sell or not, but you can’t do anything in that 14 day period.

Stefano Lucatello:

So, if you were to go and buy something else, and the other guy says, “Yes, I want to sell,” you’ll be bound to buy two properties, so be careful on that.

Stefano Lucatello:

So, having said that, the French are very consumer protectionistic, so you enter into the contract, but you can’t actually go any further until the state has said that you can actually buy that property. If it’s a property of architectural national, or artistic value then the states can say, “No, we have an overriding right of preferential purchase, and we can exercise that at the same purchase price, but we’re buying it because we want to keep it,” or for whatever reason.

Stefano Lucatello:

The other thing is that when you enter into this contract the buyer has 10 days. It’s cooling off period. It’s the only country in Europe that has it, so from the moment you receive the contract, say in England, from the vendor, signed by that vendor, you have 10 days to decide whether to buy it or not. If you do nothing by the end of the 10th day you are bound. On the 11th you are bound to buy, but if you decide within that 10 day period not to buy you can get out of it at not cost. You get your deposit back, and all the rest of it. Then you go to completion. You sing on the dotted line. There’s no exchange of contracts as such. There’s no pre-contract requisitions on title. It’s all done by the notaire, in this case in France. I, as a lawyer, follow the case. I do searches as well to the keep the English clients happy, and I do those inline with a notaire abroad, but there is not two sets of lawyers active, a vendor and purchaser. It’s all done by a notaire. You can have your own lawyer, but it’s not done abroad. It’s a totally different system of law. Then completion happens, and that’s it.

Stefano Lucatello:

Everyone attends at the offices of the notaire to complete the transaction, not done telematically like we do if I’m in Cardiff, and the other guy’s in London, whatever. We don’t need to see each other. In this case abroad you always have to see each other, and talk to each other, and especially if there’s a mortgage. Then the representative of the bank will also attend, and he’ll sign the documentation as well, so be careful. The notaire is not a lawyer who will act for you. He is there as a state representative to see that good title, and valid title is given to the buyer, and there is no taxes outstanding on the property, so you get clear route of title. It’s very much different.

John Howard:

Stefano, it sounds very old fashioned way of doing anything.

Stefano Lucatello:

It’s a very old fashioned way of doing because-

Paul Mahoney:

I was going to say that, yeah.

Stefano Lucatello:

… in any European country where you buy you have to attend the lawyer’s, the notaire’s office in this case, and he will actually read word by word the document, so-

Lucia France:

Yeah, we did it in Spain. We did that there, and they said it in English, and in Spanish, and they [crosstalk 00:40:44]-

Stefano Lucatello:

So, the other thing to understand is that if you don’t speak the language of the notaire, in this case French, he has the right not to proceed because he has to read it, and he has to make sure that you understand the ins and outs of it, the goods, the bad, the good things, the bad things, easements, rights of way, your obligations, et cetera, et cetera. They’re usually about 20, 30 pages long as you’ll know, Lucia. It takes two to three hours. Okay, you then go out to lunch with them, and all the rest of it, and celebrate. It’s called a celebration of completion.

John Howard:

Stefano. There’s 4,000 properties are sold a day in the UK on average, 4,000 a day. This lot wouldn’t get through 400 a day in France on that basis would they?

Stefano Lucatello:

Well, you say that, John, but in Spain last year there were over a million properties sold.

John Howard:

Well, in the UK 1.2 million a year, so similar. Yeah, similar amount. I can’t believe that.

Stefano Lucatello:

[crosstalk 00:41:40]

John Howard:

I tell you what. There won’t be many this year sold in Spain.

Stefano Lucatello:

Well, you say that, but the market’s picking up though. The market is picking up in Europe. I’m getting quite a few calls now of people who are getting ready, scouring the market. They are looking for sellers who have got a problem, and the same sort of application is being applied abroad to the same sort of facts here. They’re looking for the, what’s he called? The seller who’s got water up to here, and he has to sell for whatever reason, so people are looking abroad even though they can’t go abroad for the moment. The market is opening.

Lucia France:

I reckon there’ll be a big influx of people doing that once-

Stefano Lucatello:

Well, the other thing to consider is John and I’s thorn in the side, which is Brexit. Until the 31st of December this year all of us in the United Kingdom, although we’re out of Europe, will be able to acquire the same rights as we had until Brexit came into force. So, if you move abroad you will be able to become a resident with the same rights that you had beforehand. If you move into Spain, France, Italy, and Portugal after the 31st of December this year then we don’t know. The situation is still fluid. It’s still to be decided as to what’s happening, so you may not acquire, and you certainly won’t acquire the same visa right. You can’t go and come as you do now. Spain hasn’t even decided what color’s it’s going to have its visas, and what type of visa it’s going to have, and France the same. It’s a very fluid situation. We’re all watching this space, and we can’t, none of us who have commentated on the situation, can give a proper view on it.

Lucia France:

Guys, I’m going to have to stop you there. Thank you so much to all of your for all of your input here today. If you do have any questions that you would like to send in then please do email us ask@aquestionofproperty.co.uk. That’s ask, A-S-K, @aquestionofproperty.co.uk.

Lucia France:

Thank you to Stefano Lucatello, Paul Mahoney, and John Howard for all of your input today, and we’ll see you [crosstalk 00:43:34] time.

John Howard:

Pleasure.

Paul Mahoney:

Thank you.

John Howard:

Thanks, guys. Bye.

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