Wright & Wright Solicitors, has issued a warning to letting agents, asset managers and Law of Property Act (LPA) receivers that they may be unwittingly walking into a sale and rent back (SARB) regulation storm.

The lack of information on regulation of the sale and rent back sector by the FSA means many agents may be completely unaware that they could be committing a criminal offence by administering a SARB tenancy post 1 July.The FSA has recently issued rules on regulation outlining that letting agents who “perform functions such as collecting rent from an agreement seller are required to be regulated”.

Julian Sampson, partner at Wright & Wright, commented: “Certain agents can be excluded from regulation by allying their business with a regulated SARB provider and this will work well for post 1 July tenancies. The problem will come with retrospective regulation on existing tenancies which could be dragged into a regulated environment and bring the agent into breach. This problem is going to be exacerbated for lenders, LPA receivers and asset managers who are managing buy-to-let properties for landlords in default.”

Wright & Wright believes that several lenders have already been involved, knowingly or otherwise and even if fraud is proven on the part of the landlord, lenders will still have the core duties to protect the consumer. Sampson continued, “I have heard that some lenders will view these cases as a breach of the mortgage agreement and all tenants would have to be switched to a proper assured shorthold tenancy. This will be very dangerous post July. Moving to a different tenancy or varying the existing terms will be a substantive variation of the original SARB agreement and will drag the parties into conducting a regulated activity. Failure to vary permissions to administer SARB will mean that a lender, receiver or otherwise will commit an offence.”