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Sale and rent back schemes

This content applies to England & Wales

What they are, how to use them, and their potential pitfalls.

Sale and rent back schemes can be operated by local authorities, housing associations or private companies. Their stated aim is to help homeowners in financial difficulties to remain in their home by buying their property and leasing it back to them, either as part of a shared ownership arrangement or as a tenancy.

People in financial difficulties should approach their mortgage lender first to see if they can find an alternative way to deal with their financial problems, for example, switching to an interest-free mortgage, or decreasing their payments for a short-term period while they stabilise their finances or sell their home on the open market (see Cutting the mortgage costs for further details).

Private schemes

Many schemes offered by private companies are sold on the basis that they offer an immediate solution to homeowners’ financial problems, and allow them to stay in their current home. Also called sale and leaseback, or 'flash' or 'fast' sales (both terms banned by the Financial Conduct Authority (FCA), see below), some are misleadingly advertised as a form of equity release. Such schemes may also be offered by brokers and private individuals where it may be difficult to tell whether they are companies or not.

Under privately run schemes, property valuations are often made not by an independent surveyor, but by one employed by the company, and homes are usually purchased significantly below the market rate.

On the sale of the property, the company normally grants Assured shorthold tenancies with a fixed term to the former owners. Homeowners should try to negotiate for Assured tenancies instead because they will give the household better security, especially if they miss any future payments and face possession.

FCA Regulation

Firms and individual offering sale and rent back schemes are subject to regulation by the FCA since July 2009. This includes a requirement that the firm is 'fit and proper'.

Under the FCA regulatory regime, protection  granted to homeowners include:

  • a security of tenure for a minimum of five years
  • a 14-day cooling-off period to give homeowners more time to make decisions on sale and rent back
  • prohibition of high-pressure sales techniques and the use of terms such as 'flash/fast sale', 'mortgage rescue', 'cash quickly' in promotional literature
  • ban on cold calling and promotional leaflets through the letter box.

It is possible to contact the FCA to check if a firm is registered. There are some limited exemptions from the registration requirement, information about which can be found in the FCA's Perimiter Guidance Manual (PERG) 4.10 - the guidance manual is part of the FCA's Mortgages and Home Finance: Conduct of Business sourcebook (MCOB).

People who entered a sale and rent back agreement before July 2009 do not have any protection from the FCA.

Case law

Where following the sale of the property, the landlord or the landlord's lender subsequently obtains a possession order, it may be possible for the tenant to apply to set the order aside where the sale and rent back agreement was entered into as a result of misrepresentation.[1]

Former homeowners who continued to occupy properties under a sale and leaseback scheme did not have overriding interests with priority over the interests of mortgage lenders who had registered charges on completion of the relevant sales.[2]

A tenant was successful in claiming that the terms of a sale and rent back agreement were void and unenforceable because the precise terms of the agreement were not set out or incorporated in a single written document but instead contained in a variety of sources. The court found that the contract did not comply with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989.[3]

A provision in a sale and rent back contract entitling the landlord buyer to retain 30 per cent of the purchase price if it terminated the tenancy pursuant to any right to do so under the tenancy agreement (in the instance by bringing possession proceedings for rent arrears) was not an unfair term under the Unfair Terms in Consumer Contracts Regulations 1999.[4]

The buyers of a sale and rent back property, who had assured the former owners they could live there for the rest of their lives provided they paid rent when due, were estopped from claiming possession at the end of the five year fixed-term assured shorthold tenancy they had granted after the purchase, because the former owners had relied on that assurance when deciding to enter into the sale and rent back transaction and acted to their detriment.[5]

Housing benefit

When a person sells their home and becomes a tenant, they may be able to claim benefits to cover their rent. In order for a former owner to be eligible for benefits on a home they or their partner owned within the last five years, they must satisfy the local authority that they could not have remained in their home without selling it. The Department of Work and Pensions has provided guidance for local authorities in HB/CTB Circular A5/2009 to help them to identify when a person who enters a sale and rent back arrangement could be eligible for housing benefit.[6]

[1] Redstone Mortgages plc v Welch and Jackson, Birmingham County Court, 22 June 2009, Shelter's Housing Law Update August 2009.

[2] s.2 Law of Property Act 1925; Mortgage Express v Lambert [2016] EWCA Civ 555; Cook v The Mortgage Business Plc [2012] EWCA Civ 17.

[3] Scrowther v Watermill Properties [2009] EW Misc 6 (EWCC), Newcastle upon Tyne County Court, 23 October 2009.

[4] UK Housing Alliance v Francis [2010] EWCA Civ 117.

[5] Sahota v Prior [2019] EWHC 1418 (Ch).

[6] Department of Work and Pensions HB/CTB Circular A5/2009.

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