PART 11
April 2013
SALE AND RENT BACK SCHEMES
31.3.317 Sale and rent back schemes – general
Sale and rent back schemes (sometimes called sale and lease-back schemes) are commercially operated schemes designed to allow a homeowner to sell their property but remain living in it by entering into a rental agreement with the purchaser. The benefit to the homeowner is that there may be a release of equity from the property and/or a lowering of the monthly accommodation expenses (where the rent charged is lower than the mortgage) without having to leave the property.
See Part 10 of this chapter regarding the similar public sector Mortgage to Rent scheme.
31.3.318 General concerns about sale and rent back schemes
Historically, sale and rent back schemes were often targeted at those in extreme financial difficulty and were often entered into without the homeowner being given the opportunity to seek independent advice. This often resulted in the homeowner entering the scheme when, in fact, that might not have been the best option for them.
Homeowners were often persuaded that they would have security of tenancy following the sale and were then given only a short (6-12 month) tenancy. To compound this, the tenancy would sometimes have strict eviction ‘triggers’, with prohibitive rent increases. The property might be sold at less than market value and there was often a delay in paying over the proceeds, including a retention for ‘improvements’ or ‘repairs’ to the property.
As a result, there was an Financial Services Authority (FSA) review of the sector (see paragraph 31.3.319).
31.3.319 Sale and rent back schemes – regulation of the sector
Due to concerns about the un-regulated nature of the sale and rent back sector, and concerns about the way the schemes were marketed and operated (see paragraph 31.3.318), the FSA conducted a review, which resulted in the sector being regulated from 1 July 2009.
Regulation requires the firm offering the sale and rent back scheme to be authorised to do so by the FSA. Among the rules relating to authorisation, the firm has to ensure that the valuer of the property owes a duty of care to the homeowner, resulting in a ‘fair’ valuation. The firm also has to ensure that they help provide security of tenure – in particular, giving a tenancy of at lease five years, with no unfair eviction ‘triggers’.
31.3.320 Challenging a sale and rent back agreement
It is possible that a sale and rent back agreement may be challenged as a transaction at an undervalue (see paragraph 31.3.321) or, less likely, a transaction defrauding creditors (see paragraph 31.3.322), particularly if the property was transferred to the sale and rent back company under market value and with no discernible benefit to the bankrupt (such as a notably lower monthly accommodation cost).
It is probable that any agreement entered into after regulation of the sector (1 July 2009) will have provided for a sale at market value.
The decision on how best to attack the transaction (if at all) would normally be left to The Service’s antecedent recovery contractor (see Chapter 31.4A, Part 1).
The circumstances of the sale may be relevant if the official receiver considers the bankrupt’s conduct to merit a bankruptcy restriction order (see Enforcement Investigation Guide, Chapter 69, Part 6).
31.3.321 Sale and rent back agreement as a transaction at an undervalue
Prior to regulation (see paragraph 31.3.319), a key feature of a sale and rent back scheme was that the property was often purchased from the homeowner at less than the true market value of the property.
Assuming that all the other features of a transaction at undervalue (see Chapter 31.4A, Part 3) are present, then any agreement that provided for the property to be sold at less than its market value should normally be challenged as a transaction at an undervalue.
Certain enquiries should be made to assist the official receiver in reaching this decision (see paragraph 31.3.324).
31.3.322 Sale and rent back agreement as a transaction defrauding creditors
Where it can be shown that the sale of the property was conducted with the intention of putting the asset beyond the reach of creditors then the sale may be challenged as a transaction defrauding creditors (see Chapter 31.4B, Part 7). For the reasons given in paragraphs 31.4B.141 to 31.4B.142, and subject to the views of The Service antecedent recovery contractor, the official receiver, as trustee, would normally seek recovery as a transaction at an undervalue.
Certain enquiries should be made to assist the official receiver in reaching this decision (see paragraph 31.3.324).
31.3.323 Sale and rent back agreement fees as a transaction at an undervalue
Prior to regulation of the sector (see paragraph 31.3.319), it was not unusual for a sale and rent back firm to charge fees that some might describe as exorbitant or, certainly, unreasonable. It is likely that the fees paid were in excess of any true value in the service provided by the firm. Where the official receiver, as trustee, considers this to be the case, any unreasonable fees may be recovered as a transaction at an undervalue (see Chapter 31.4A, Part 3).
Certain enquiries should be made to assist the official receiver in reaching this decision (see paragraph 31.3.324).
31.3.324 Enquiries to be made regarding a sale and rent back agreement entered into prior to 1 July 2009
Where the bankrupt entered into an agreement prior to 1 July 2009 (see paragraph 31.3.319), the official receiver should seek to obtain the following information/documents to establish whether there are any matters for recovery (see paragraph 31.3.320) and/or any matters of wrongdoing that may lead to a report to Trading Standards (see paragraph 31.3.328) or a BRO/U:
This information may be obtained from the bankrupt and/or the sale and rent back firm, as appropriate.
31.3.325 Enquiries to be made regarding a sale and rent back agreement entered into after 1 July 2009
Where the bankrupt enters into a sale and rent back agreement after 1 July 2009 (see paragraph 31.3.319), a check should be made that the firm who arranged the scheme was authorised by the FSA to do so. This can be achieved by searching the register on the FSA website (http://www.fsa.gov.uk/register/home.do). Assuming that the scheme was arranged by an authorised person, and subject to the following, there are unlikely to be any further concerns.
The official receiver should, however, obtain a copy of the valuation carried out prior to the sale of the property and, where there is doubt over the accuracy, check the valuation. This will assist in establishing if there might have been a transaction at an undervalue (see paragraph 31.3.321).
31.3.326 ‘Buy-back’ clauses in the sale and rent back agreement
A sale and rent-back agreement will often include an option allowing the homeowner to re-purchase the property at a pre-agreed date for a fixed price. It is not unusual that the conditions of this ‘buy-back’ clause are such as to make exercising the right unattractive. That said, the right would be an asset in the bankruptcy estate and, where the agreement is not overturned (see paragraph 31.3.320), the right to re-purchase should be passed to the LTAU for possible exercising and consequent realisation of the property.
31.3.327 ‘Buy-back’ clauses and the family home
A ‘buy-back’ clause in the family home is subject to the ‘use it or lose it’ provisions (see Part 3) requiring that such property interests are dealt with within a three year period.
Where the clause is not exercisable until after the expiration of that period, the official receiver will need to apply to court for extension of that period, following the guidance in paragraph 31.3.85.
31.3.328 Concerns to be reported to Trading Standards
Where the official receiver has concerns about the circumstances in which a bankrupt has entered into a sale and rent back scheme, or the terms of the agreement (particularly where the agreement was after 1 July 2009 and the firm was not authorised – see paragraph 31.3.325), the details may be reported to the local trading standards department.
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