Understanding FCA Compliance in Sale and Rent Back Agreements
- What is Sale and Rent Back (SRB)?
Imagine selling your home but staying put as a tenant, that is the promise of a Sale and Rent Back (SRB) agreement. These agreements involve a homeowner selling their property to a third party while retaining the right to continue living in the property as a tenant. These arrangements are often marketed to individuals facing financial difficulties, offering immediate cash relief and continued occupancy.
How Do SRB Agreements Work?
A regulated SRB agreement typically includes the following features:
- You retain the right to occupy at least 40% of the property.
- The buyer may be an individual or a firm.
- The agreement must comply with FCA regulations if conducted ‘by way of business’.
Examples of SRB arrangements:
- Example 1: A retired homeowner sells their house to release equity and continues living there paying rent.
- Example 2: A financially distressed homeowner sells to avoid repossession and remains as a tenant.
- FCA Review of the SRB Market
In 2011, the Financial Services Authority (FSA), now the Financial Conduct Authority (FCA), conducted a review of 22 authorised SRB firms to assess compliance with the regulatory regime introduced in June 2010. The review aimed to protect vulnerable homeowners and ensure fair practices.
- What Were the Key Findings: And Why It Matters
The review uncovered widespread misconduct and non-compliance with the Mortgage and Home Finance: Conduct of Business (MCOB) rules. Key issues included:
- Unaffordable and inappropriate SRB transactions.
- Poor assessment of customer financial circumstances.
- Misleading disclosures and delayed legal documents.
- Unfair tenancy terms and lack of plain language.
- Non-compliant financial promotions targeting vulnerable consumers.
- High-pressure sales tactics and inadequate record keeping.
- Weak compliance monitoring and unauthorised business dealings.
- The Regulatory Actions From the FCA
The FCA was robust in its regulatory response and because of the review:
- Five firms voluntarily exited the SRB market.
- One firm was referred for enforcement.
- Several firms agreed to conduct past business reviews.
As a result, the regulated SRB market was effectively put on hold.
- Legal and Regulatory Framework
The SRB market is governed by the Financial Services and Markets Act 2000 (FSMA) and specific rules in the FCA Handbook (MCOB). Key regulations include:
Rule What It Covers
MCOB 4.11: Affordability assessments.
MCOB 5.9: Disclosure requirements.
MCOB 2.6A: Tenancy agreement standards.
MCOB 3.8B: Financial promotions.
MCOB 2.6A.12A: Valuation duty of care.
Sources: FCA Handbook
- Case Studies: Criminal Proceedings (2023)
In 2023, the Financial Conduct Authority (FCA) initiated criminal proceedings against several individuals for conducting SRB activities without proper FCA authorisation. The charges included unauthorised activity under the FSMA and fraudulent trading under the Companies Act 2006.
Legal implications:
- Unauthorised activity under FSMA: Carries a potential penalty of up to 2 years’ imprisonment.
- Fraudulent trading: Can carry a penalty of up to 10 years’ imprisonment.
- Key Risks of SRB Highlighted by FCA
SRB schemes pose significant risks to financially vulnerable homeowners, including:
- Misleading tenancy terms.
- Rent increases and eviction threats.
- Misrepresentation of agreement nature.
- What Counts as a Regulated SRB Activity?
If a business undertakes any of the following activities, it will require FCA authorisation:
- Arranging or advising on SRB deals
- Entering into, administering, or agreeing to carry out SRB agreements.
- Exclusions and exemptions may apply, particularly if the activity is not conducted ‘by way of business’.
Territorial scope:
- FSMA applies to UK-based activities.
- Overseas firms may be regulated if the seller resides in the UK.
Revocation of Article 5 (2022): Previously, SRB deals between family members were assumed to be unregulated. That’s no longer the case, now it depends on whether the deal is commercial.
Sources: The Advisory Citizens Advice.
Conclusion: The Importance of Regulatory Compliance
The FCA’s review underscores the importance of regulatory compliance in SRB schemes. Firms or individuals involved in SRB must:
- Obtain proper authorisation.
- Follow MCOB rules.
- Avoid misleading practices.
- Ensure transparency and fairness to protect consumers.
Frequently Asked Questions and Further Considerations
Do I need FCA authorisation for a one-off SRB transaction?
Depends on whether it’s conducted “by way of business”. Even one-off deals can be regulated if there’s a profit motive or commercial structure.
What are the consequences of conducting SRB without FCA authorisation?
Criminal offence under FSMA. Penalties include fines and imprisonment (up to 2 years for unauthorised activity, up to 10 years for fraudulent trading).
What disclosures are required under MCOB rules?
Firms must disclose their role, fees, and whether they deal with authorised providers. They must also provide the MoneyHelper factsheet and explain it orally.
Tenant & Property Questions
What protections does the tenant have under a regulated SRB agreement?
Minimum five-year tenancy, legal eviction procedures, and tenancy agreement standards under MCOB 2.6A.
Can the buyer evict the tenant if rent isn’t paid?
No immediate eviction. Legal tenancy laws apply, and eviction must follow due process.
What if the property is sold below market value?
Common in SRB schemes. Can trigger lender objections or legal challenges if the sale is deemed unfair.
Family & Business Questions
Is an SRB agreement with a relative regulated?
Not automatically. If it’s commercial (e.g. rent charged), it may still be considered “by way of business” and require FCA authorisation.
What changed with the revocation of Article 5?
Removed the assumption that SRB agreements are not “by way of business” if between family members. Now assessed case-by-case.
Operational & Legal Questions
What are the reporting requirements for SRB firms?
Regular RMAR and MLAR submissions, complaints returns, and product sales data every 3–6 months.
What are the valuation requirements before entering an SRB agreement?
Must be done by a competent, independent valuer using RICS standards. Valuation must accompany the pre-offer document.
What if the tenant is a relative but I’m making money?
This scenario touches on regulatory classification and profit motive:
Regulated vs. unregulated SRB: If the tenant is a related person (e.g. spouse, child, sibling), the arrangement may not be classified as a regulated SRB agreement under FCA rules, unless the transaction is conducted “by way of business.
Profit motive matters: If you’re making money from the arrangement (e.g. charging rent, gaining capital appreciation), and it’s not a one-off or private arrangement, the FCA may still consider it “by way of business”, triggering the need for authorisation.
Revocation of Article 5 (2022): Previously, SRB agreements were automatically considered “by way of business” unless between family members. This assumption was revoked, meaning even family arrangements can be regulated if they are commercial in nature.
What the FCA Will Look Out For:
- Will the individual / company benefit commercially?
- Is it deemed by way of business?
- Does it have a commercial structure?
- If it is deemed by way of business, then FCA approval is required
Note that absence of rent does not make it exempt from regulation. The FCA looks at the overall structure and intent e.g.
- Does the buyer gain a financial benefit?
- Is the seller vulnerable?
- Is the buyer acting in a businesslike manner?
- What is the intent of the buyer?
- Is it a one-off transaction?
Need Advice on FCA Compliance for SRB Agreements?
Whether you are a property professional, investor, or landlord considering a Sale and Rent Back arrangement, regulatory compliance is essential and our team can advise you.
We act for clients across the residential property sector, offering clear, strategic guidance on regulated transactions and risk exposure.
To discuss your position or arrange a confidential consultation, contact our team today.
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This blog was prepared on 21 October 2025. It is not intended to be advice and should not be relied upon as such.