Sale and rent back is a form of
property transaction involving the expeditious sale of an
owner occupier
Owner-occupancy or home-ownership is a form of housing tenure in which a person, called the owner-occupier, owner-occupant, or home owner, owns the home in which they live. The home can be a house, such as a single-family house, an apartment, con ...
's residence to a
landlord
A landlord is the owner of property such as a house, apartment, condominium, land, or real estate that is rented or leased to an individual or business, known as a tenant (also called a ''lessee'' or ''renter''). The term landlord appli ...
or property company and
renting
Renting, also known as hiring or letting, is an agreement where a payment is made for the use of a good, service or property owned by another over a fixed period of time. To maintain such an agreement, a rental agreement (or lease) is sig ...
it back from the new owner. This may be done by the occupier to release equity from the home without them having to move out, but there are risks and disadvantages for the occupier.
In the United Kingdom
In the UK, the residence is sold and rented back to the previous owner usually, but not always, on an
assured shorthold tenancy
The assured shorthold tenancy (AST) is the default legal category of residential tenancy in England and Wales. It is a form of assured tenancy with limited security of tenure, which was introduced by the Housing Act 1988 and saw an important d ...
. The purchase price is generally below market value.
In November 2014, judges in a test case before the
supreme court
In most legal jurisdictions, a supreme court, also known as a court of last resort, apex court, high (or final) court of appeal, and court of final appeal, is the highest court within the hierarchy of courts. Broadly speaking, the decisions of ...
ruled unanimously that mortgage lenders were legally entitled to
repossess homes in cases where the 'sale and rent back' companies had defaulted on mortgages used to buy the properties from their original owners. The promises of lifetime tenancies which had been offered by the sale and rent back companies were found to be worthless, and several hundred such tenants – many of them elderly or vulnerable – faced eviction following the ruling.
In ruling that the rights of the mortgage lenders took precedence over those of the tenants, one of the judges, Lord Collins, agreed that it was "a harsh result"; the judges noted that the former owners "may have been ... the victims of a fraud which tricked them out of their homes" – criminal charges are pending in some cases.
Disadvantages
The downsides that in some circumstances the tenant is only provided with a limited tenure tenancy, in some cases for as little as 6 to 12 months after which the landlord may seek possession of the property with only two months notice. In addition, subsequent refinancing can see a new owner taking control, which adds to the uncertainty of tenure.
In recent years, the market for this option has swelled but the openness or longevity of the companies operating in it can be questionable. In addition to short tenancy, the future of rent charged can be unknown. Such companies advertise in the same media as sub-prime lenders, supplementing this with door-to-door leaflet drops.
This method is regulated by the
Financial Conduct Authority
The Financial Conduct Authority (FCA) is a financial regulatory body in the United Kingdom. It operates independently of the UK Government and is financed by charging fees to members of the financial services industry. The FCA regulates financi ...
under the Financial Services and Markets Act (Regulated Activities) Order 2001. In 2012, the
Financial Services Authority
The Financial Services Authority (FSA) was a quasi-judicial body accountable for the regulation of the financial services industry in the United Kingdom between 2001 and 2013. It was founded as the Securities and Investments Board (SIB) in 1985 ...
said it had effectively shutdown the sector for sale and rent back schemes in the UK after investigating complaints.
See also
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Equity release
Equity release is a means of retaining use of a house or other asset which has Capital (economics), capital value, while also obtaining a lump sum or a steady stream of income, using the value of the asset.
Pricing of no negative equity guaran ...
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Elder financial abuse
Elder financial abuse is a type of elder abuse in which misappropriation of financial resources or abusive use of financial control, in the context of a relationship where there is an expectation of trust, causes harm to an older person.
The Old ...
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Leaseback
Leaseback, short for "sale-and-leaseback", is a financial transaction in which one sells an asset and leases it back for the long term; therefore, one continues to be able to use the asset but no longer owns it. The transaction is generally done fo ...
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Rent-to-own
Rent-to-own, also known as rental purchase or rent-to-buy, is a type of legally documented transaction under which tangible property, such as furniture, consumer electronics, motor vehicles, home appliances, engagement rings, and real property, ...
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Reverse mortgage
A reverse mortgage is a mortgage loan, usually secured by a residential property, that enables the borrower to access the unencumbered value of the property. The loans are typically promoted to older homeowners and typically do not require monthl ...
References
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