Regulated activity or not?

Hi David

I suspect such a transaction would fall fould of the FCA Home Reversion Scheme Regulations. There are exemptions for blood relatives but apart from that I think your Aunt is stuck.

I'm no expert on this so don't take my word for it but please have a read of this >>> http://www.fca.org.uk/firms/financial-services-products/mortgages/home-reversion-schemes

and this >>> http://www.fca.org.uk/firms/about-authorisation/getting-authorised/faqs/home-faqs
.

I think that if market price was paid for the cottage then it is not a home reversion scheme and would not come under the FCA. Once the cottage is bought then you can decide who you want to live in it and probably some legal documentation can be drawn up to reflect the agreement. I am not a lawyer so don't know about that.
If, on the other hand, it is intended that your great aunt buys below market value to offset the lack of rent, then it would be a home reversion scheme as noted by Mark above and all sorts of legal and licensing type problems would arise.

Reply to the comment left by "Sam Addison" at "05/06/2015 - 10:31":

many thanks for you comment

We now seem to be at the bottom of this question Here is my findings for anyone else who may need clarification on this subject (one never knows)

It would seem that this question is quite common after all and dealt with as you said by the FCA. However the underpinning legislation lies elsewhere in section 22 of the financial services & management act 2000. This states that for the purpose of the act an activity will be regarded as a regulated activity if it is carried on by the way of business. PERG. 14.5 of the FCA hand book details the by way of business test applied to such cases. to be considered are...1. the degree of continuity 2. the extent of any commercial element 3. the scale of the activity 4. the proportion the activity bears in relation to unregulated activities carried on by the same person. The act also states that if this there is still any doubt it would ultimately be a matter of judgement. (I assume by a judge in court). With regard to my aunt, she quite clearly fails to satisfy the test for business so the activity would not need to be regulated. The common misconception here appears to be between the person & the activity. People are authorised & activities are regulated (people are not regulated) Further confusion lies herein, Activities are NOT born regulated. They are naturally exempt until they are conducted by the way of business, only then do they become subject to regulation & then the person carrying out such an activity would then need to to be authorised by the FCA. The only exemption is an SARB agreement which is always regarded as "business". My aunt as you say will be entering into a home reversion plan and as it is can be clearly demonstrated that this is not a business activity the transaction will not become a regulated activity & she will not need to authorised by the FCA

The links you kindly pointed me towards offer a clue http://www.fca.org.uk/firms/about-authorisation/getting-authorised/faqs/home-faqs This url. points first to a file named "firms" this is because the FCA does not deal with nor has any jurisdiction over private individuals. Once one begins to enquire to the FCA for clarity one is immediately asked which firm one is from and then the process ends. The fact is that with all the will in the world an individual can't get authorisation from the FCA.

You see, we always get there in the end Mark. Many thanks again & the very best of luck with property118.com.

Regards

Would she need a mortgage? If yes, then it is sale and rent back and will not be permitted. If no, then why need anyone else be involved? Where is the financial aspect? Both GA and friend should get independent legal advice. This sounds like a recipe for disaster for both of them. Why would your GA tie up her money for no return? What happens if/when she needs it herself? Friend gets free or subsidised accommodation but limited security. Deals like this between friends usually end the friendship.

I agree with Puzzler, if no mortgage what's the issue? I would certainly have some sort of agreement in place and with a peppercorn rent. Any arrangement may commit your aunt to maintenance obligations etc - this needs to be fully understood.

I have just looked up home reversion on the internet and now understand it is a kind of equity release. As such it is regulated by the FCA. I don't know how that would sit with a private arrangement which is what this would be. But it is regulated for good reasons which would probably also apply to a private individual.

I repeat that both of them must get independent (of each other) specialist legal advice at the very least.

I should add that if the friend later needs care, they could both lose out.

Sam above is correct, a market price should be paid.

Reply to the comment left by "Puzzler " at "06/06/2015 - 18:59":

Thanks for that, no mortgage reguired and no rent to be paid and no equity released.

Reply to the comment left by "Rob Crawford" at "06/06/2015 - 16:33":

Thanks Rob, there would be a deed of trust detailing maintenace isuses etc as you say, but cant do peppercorn rent or it will become an srb (sale & rent back agreement which is always regulated.
Cheers

Reply to the comment left by "DAVID SMITH" at "07/06/2015 - 12:12":

Well done your Aunt for supporting her friend.