Mortgage Lender’s Interest Superior to That of Occupier

If you are having difficulty paying your mortgage, you may be tempted to consider a sale and rent back (SRB) agreement. Under an SRB, the property is bought by a new owner, typically at a discount. The new owner becomes your landlord, leaving you in occupation of the house. The tenancy granted is almost always a shorthold tenancy, but that is not always the impression conveyed to the person undertaking the SRB.



SRBs have been regulated under the Financial Services Act since 2009, prior to which the market was unregulated. The courts are now beginning to see cases which illustrate the potential pitfalls of SRBs.



The main issue in many of the disputes is that the occupiers of properties that have been subject to SRBs are under the mistaken impression that the agreement they have entered into gives them the right to occupy the property for life. This can become particularly difficult if the mortgagor wishes to repossess the property because the new owner has defaulted on the mortgage. It then finds itself faced with a tenant who it believed had only a shorthold tenancy who is claiming to have the right to remain in the property for life.



Recently, the Court of Appeal heard a number of test cases in which the main issue was whether a mortgage lender had the right to repossess properties under SRBs. In each case, the SRB company had ceased paying the mortgage and the tenant claimed to have been given the right to occupy the property for life.



The Court upheld the right of the mortgage lender to repossess the houses. The mortgage lender’s interest in the properties was superior to that of the occupiers. The tenants’ rights are limited to the right to take action against the SRB provider who misrepresented their legal position to them.



This decision may yet be appealed to the Supreme Court.