Spotlight on the "Sale and Rentback" Industry
The Government has announced that it is entering into a consultation period until 1st May 2009 regarding proposed regulation of the ‘Sale and Rentback’ Industry following the findings of a study by the Office of Fair Trading into common practices and problems within the sector.
Sale and Rentback (also known as Sale and Leaseback) is a scheme whereby homeowners are given the option of selling their property (often at substantially discounted rates) in return for the right to remain at the property as a tenant.
The Tenancy Agreement is generally an Assured Shorthold Tenancy Agreement for a period of 6 to 12 months. Schemes are typically advertised under banners such as “any property bought for cash” or “repossessions stopped” and often appeal to what the OFT consider to be vulnerable members of society who have mortgage arrears and are in fear of repossession. Firms operating such schemes range from private individuals on a local basis to large companies operating nationally.
The consultation has been launched following the findings of an OFT study, published on 15th October 2008. The study found a number of serious issues within the industry which it felt were placing some of society’s more vulnerable people in serious jeopardy. The findings concluded that:
- Vulnerable members of society, concerned about mortgage arrears and potential repossessions, were having their anxieties exploited by high pressure selling tactics playing on emotional and financial difficulties
- A wide range of property prices were being paid, varying from under 50% of the property value to up to 90% of the property value
- Property valuations were not always carried out independently and this was cause for concern
- Agreements were not always fully understood by individuals, who often believed that the Tenancy Agreement gave them a right to remain at the property in the long term, whereas they are often evicted at the end of the Tenancy Agreement or face steep rent increases
- Homeowners did not always fully understand the implications of the transaction
- There were instances of the purchasing company failing to pay the mortgage secured on the property, with the result that the property was repossessed and the tenant removed
The OFT report made 3 key recommendations to the Government:
- That the sale and rentback sector should be regulated by the Financial Services Authority
- That the Government should raise awareness of the industry and the risks involved
- That the Department for Work and Pensions should provide more information on the impact upon Housing Benefit eligibility for sale and leaseback tenants
Having considered the recommendations the Government has launched the consultation to consider whether to bring the industry within the FSA’s regulation or whether to allow self-regulation of the industry; or indeed whether to simply take no action.
The Government has also accepted the OFT’s recommendations that the Government should raise awareness of the risks and that the Department of Work and Pensions should provide more information on the impact upon Housing Benefit eligibility.
This article was written by Mark Kelly of our Conveyancing Team.