Office of Fair Trading
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OFT seeks substantiation from sale and rent back firms over adverts

OFT seeks substantiation from sale and rent back firms over adverts

OFFICE OF FAIR TRADING News Release (08/09) issued by COI News Distribution Service. 30 January 2009

The OFT has issued formal notices to 16 sale and rent back firms asking them to substantiate claims they make in their adverts.

Sale and rent back firms buy homes from individuals, usually at a significant discount, and then rent them back to the previous owners.

Typical examples of the claims made in adverts by these 16 firms include:
* that customers can choose to stay in their properties after they are sold, by renting them back as tenants for as long as they wish, at a fair market rate,
* that customers can buy back their properties at an agreed point in the future,
* that customers will have low rent periods and flexible rental terms.

The firms have been given 14 days to reply to these OFT notices. Based on their replies the OFT will make a decision on whether or not to take further action, against these firms, including prosecution.

This action follows a 2008 OFT market study into the sale and rent back sector which concluded that there was a need for statutory regulation. It found that some firms may be misleading consumers as to the value of their property or how long they may stay in the property after it is sold which may only be guaranteed for six to 12 months.

Heather Clayton OFT Senior Director of Consumer Protection said:
'Sale and rentback companies must be clear and transparent about the services they offer and the security consumers have as tenants. Clarity of advertisements is particularly important in the sale and rent back sector where customers may be under stress from financial difficulties, at risk of losing their homes and making important and complicated decisions. The OFT will continue to take action in any cases where such businesses engage in unfair and misleading practices.'

NOTES
1. The OFT completed a market study on the sale and rent back sector published on 15 October 2008. See http://www.oft.gov.uk/shared_oft/reports/consumer_protection/oft1018.pdf. The study made a number of findings and concluded that there was a need for statutory regulation in the sector and better protection for consumers. The main recommendation of the OFT report is that there should be statutory regulation of the sale and rent back sector by the Financial Services Authority (FSA). The details of regulation will be up to the FSA to determine but the OFT considers it should include:
* an obligation on sale and rent back firms to be more transparent about the initial valuation and sale price, the terms of the tenancy and the amount of rent to be paid. In particular, firms must offer forms of tenancy that match the assurances they give to customers, and
* a requirement on firms to tell consumers about the free, independent advice available to them before they decide to sell.

2. Following the market study the OFT is conducting a preliminary investigation into the trading practices of firms operating in the sale and rent back sector. This has included a review of advertisements of firms claiming to provide sale and rent back services which would benefit consumers.

3. The OFT market study found that rental agreements are typically assured shorthold tenancies (AST), standard for the private rented sector, and granted for an initial fixed period of six or 12 months. Once the fixed period of the tenancy has expired, the landlord is able to recover possessions at his own initiative.

4. There is little reliable data on the size of the industry. However it is likely that there are upwards of 1,000 firms, together with an unknown number of non-professional landlords, who have conducted about 50,000 transactions to date.

5. Under The Enterprise Act 2002, the OFT may apply for an enforcement order against or seek undertakings from a person or company to stop or prevent infringements of consumer protection laws which harm the collective interests of UK consumers. Criminal action may be taken if certain consumer protection laws have been breached. Such action will only be taken if appropriate.

6. The OFT has not disclosed the names of the companies which are the subject of the notices referred to above. Under restrictions in the Enterprise Act relating to disclosure of specified information, it is a criminal offence for a public authority such as the OFT to disclose certain specified information relating to a business or an individual which it obtains in connection with the exercise of its functions. The OFT is under a legal requirement to consider the extent to which any such disclosure is necessary and the potential harm it may cause to any business or individual to which it relates.

7. The OFT is unable to provide advice or resolve individual complaints for consumers. Consumers who are concerned about whether sale and rent back is the right product for them should seek independent advice. They may wish to contact an organisation such as their local Citizens Advice Bureau. Consumers who are concerned they have been unfairly treated by a company offering sale and rent back can contact Consumer Direct (tel: 08454 04 05 06 or visit the Consumer Direct website.

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