Here is a question to the blog clinic from Juliet
I am looking at buying a house which is currently owned by the person living in the house, she has told me she is happy to sell the house to me with the following conditions:
1. We agreed a set figure
2. She can live in property until she dies.
3. I cover all repairs costs etc and she covers billsI have been reading about this and I can’t figure out which is best way to do this, I was considering a protected tenancies, or a sitting tenant.
Please can you advise me on this matter?
To start with a ‘protected tenancy’ means a tenancy protected under the Rent Act 1977 and the ability to create this ended on 15 January 1989. A ‘sitting tenant’ is just a term for someone who is hard to evict, it is not the name of an actual type of tenancy.
From the tenant’s point of view, the best form of tenancy for her would probably be an assured tenancy.
This is very similar to an assured shorthold tenancy but the landlord does not have the right to evict the tenant under section 21.
So with an assured tenancy the tenant has long term security and so it does not matter that (for example) they have a periodic monthly tenancy. You would still be able to evict for rent arrears though.
One of the scandals of the modern age is the practice of companies buying up properties from property owners (usually at less than their full value because the owner is desperate for the money) on the basis that they will be allowed to live there, but giving them assured shorthold tenancies and then evicting them under section 21 a few years later.
So the tenant would need to make sure she got at assured tenancy.
From your point of view, I would suggest that the tenancy agreement specify that the succession rules be excluded, as you don’t really want the tenant getting married to a much younger man and then being stuck with her husband after she dies.
Needless to say, both of you should be represented by solicitors in the transaction to ensure that these things are done properly and that the interests of you both are respected.
With respect this sounds like a tenancy for life which is a specific and specialised animal.
I have a friend who got into a right royal tangle in one of these -go to a specialist L&T solicitor is my advice, money very well spent. Especially if trying to exclude Statutory based succession rights.
Personally unless an absolute bargain and situated in idyllic scenery I’d by something else, but then I’m a wimp who having seen family with overseas property problems – severe ones – would also never by abroad!!!
Just thought – tenant will take legal adviuce and excluse assured tenancy as Landlord can serve a ground 1 notice and at the end of any fixed term seek possession on ground 1(a) to live in it themselves.
As I say true tenancy for life tenancies are a nightmare – take Tessa’s advice and go legal asap
Sorry mean ground 1(b) of course
This sounds a bit close to “sale and rent back” that is no longer allowed.
I thought that you needed to be licensed by the FSA to do SARB regardless of the tenancy type that you use?
And as an aside FSA aren’t licensing anyone to do SARB as they don’t think it’s safe under any circumstances.
Just sayin
I’m assuming you’re doing it as a private deal not as a company?
It should be an Assured Tenancy and any solicitor acting for the seller would advise this anyway.
We did a handful of ‘sale and rent back’ deals until the FSA rightly cracked down on it and regulated the activity due to a lot of bad practice.
The tenants we did it for are all still very happy on Assured Tenancies with restricted rent increases (linked to RPI but capped at a certain level).
You should be under no illusion though – you must be prepared for the long haul.
Jamie
How is the tenancy a tenancy for life if an Assured Tenant?
So far as I am aware, in law you cannot have a tenancy for life as it is for an indeterminate period.
The only ‘legal estates in law’ allowable under the Law of Property Act 1925 are (1) an estate in fee simple (freehold) and (2) the term of years (leasehold).
You can have a tenancy for life in equity, but this would have to be under a trust where someone else held the legal ownership.
I don’t think the questioner here wants to get tied up with equitable trusts and so I suggested an assured tenancy where the tenant gets long term security.
But I would strongly advise that this be done by a solicitor and that she does not try to do it herself!
I should add here that I don’t know much about sale and rent back (not being a conveyancer) so cannot really comment on this aspect.
Tessa,
Your Blog is about Sale and Rent Back – it’s an emotive area. SARB has been outlawed, and yet is still being practised by the “below the radar scammers”.
Your blog implies that the activity may valid – in area that the government has sought to outlaw. I think that you need to be more specific than “I don’t know much about sale and rent back (not being a conveyancer) so cannot really comment on this aspect”.
Sorry if it seems that I am having a go at you, but the Blog is specifically about SARB, something that the government has tried to stop. Your advice needs to be correct, and you imply that the government has left a loophole.
When the FSA cracked down on SARB it left only one company trading. I have no idea if they are still in business and I don’t doubt that there are still underground ones trading.
What I have seen lately is a few characters offering to buy a property from a person in difficulty at a massive discount and offering to buy them a small place outright somewhere miles away from London.
Nothing so bad with that in principle but the pressure tactics they use can be appalling.
Last year I was called in by a 65 year old man with £189,000 worth of equity and debts of £32,000. he was being pressured to sell to two men on a promise of clearing his £32k debts and buying him a small flat in Hull for £32,000. This would have netted them £125,000 profit overnight.
He wasn’t happy but was intimidated and when I intervened I got grabbed outside the court and they threatened to have me killed.
Nice people to do business with!
Leaving that aside Ben, so far as you are aware, does the SARB legislation make it illegal for a private individual (ie NOT a business or limited company) to buy a property off another private individual and then rent it back to them?
As a private arrangement between two people rather than as a company doing this as a business.
Ben & Tessa,
I know that your hearts are in the right place, but I don’t find the blog or it’s comments helpful. If I am wrong, please spell out that I am wrong – I am not an expert in this field, but I know that the FSA have closed down SARB. They have now closed it down fully, utterly and completely. No exceptions.
In spite of that there are scammers still doing it, rather as Ben described. There are still GRQ merchants claiming it can still be done “if done properly”. There are still people working out ways to get around the law and “help people” (one devised by Glenn Armstrong was described by Richard Greenland on Facebook last year).
This blog advises on how to do something that has been made illegal by the FSA.
I have asked Ben to get back on this but the feedback I have got is that the restrictions are on companies trading in SARB not on individual arrangements between two willing partners.
However I think it is essential that anyone involved in this sort of exercise uses a solicitors firm and this is the advice given in the post.
As Tessa mentioned I called the FCA this morning and spoke to one of the advisers Paul. He went away and researched it and got back to me.
He said, as Tessa reports that any restrictions are on companies only not on an individual choosing to to deal a private deal with another individual. The FCA would not interfere with an arrangement of that kind.
Oh wow thanks for doing the research, that is going to open the gates for a lot of people who thought it was banned!
Following on from that, if anyone who runs a business is considering doing anything like this (as opposed to a private deal, for example if you are helping out a friend or family member) then I think it is essential that both parties be represented and that you also check out the situation with the FSA helpline as well before taking any action.
Keep a record of the call and also the name of the person you spoke to.
I also think that even if it is not a business based sale and purchase, it is still a good idea to have solicitors act on the sale and drafting up the subsequent tenancy agreement. If there are any illegalities they should pick up on it and advise you accordingly.
Tessa,
Your question about whether it’s illegal for a private individual to BtL back to the vendor is one close to my heart, because we did precisely this last year.
After a lot of ringing around, nobody – including the FSA and our solicitor – could say it wasn’t legal. The estate agent was marketing the place on the basis that the vendors wanted to remain as tenants – no question of any kind of below-market-value scam. We’re happy with the deal. They’re happy with the deal. There’s a 1 year AST in place, with them having first refusal on the same again. We want them to stay for as long as they want.
Who could possibly come off badly from such an arrangement?
To be clear:-
My comments apply to SARB post 2009 not before.
The opening post clearly refers to a sale and rent back situation; the talk of what type of tenancy it is is muddies the waters and is secondary to SARB issues.
SARB is not outlawed either commercially or between individuals.
However to operate commercially you must be regulated by the FCA.
There are currently NO companies that hold FCA regulation for SARB.
The FCA brought in interim regulation then full regulation and were very unhappy about the practices of the regulated firms so they shut it down completely. They have since reopened but no firm has applied again for regulation hence no firm currently regulated to do so.
A SARB between individuals is allowed BUT there must be absolutely NO commercial motive or gain for the buyer (rental profits, capital gain etc). Think rich relative helping out. To do do with commercial gain in mind or any such agreement as such would require FCA regulation. Not doing so is a criminal act.
Lending is a separate issue; no lender would knowingly agree to fund a SARB arrangement even a non commercial one so it would have to be a non commercial cash purchase – again think rich relative. To have obtained a mortgage on a SARB would be considered deception and a lender will take action to repossess should they discover this.
It is unlikely the FCA will give a clear yes/no on any regulated activity; they will simply state they produce the regulations and its up to individuals to interpret them.
Thank you very much indeed Lisa for clearing that up.
I have put a note on the post now warning that this arrangement can be illegal and asking people to read the comments.
You’re welcome Tessa; it’s an area of much confusion.
Also with regards to the original post, had it not been a SARB it’s also worth noting that lenders would not lend on anything other than an Assured SHORTHOLD Tenancy.