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.