… and it includes councils not warning would-be buyers of massive major works bills
The government has created a £16 million counter fraud fund to stop right to buy scams.
While there are better protections built into the Housing and Planning Bill, it is not clear to what extent this will stop the scammers working this market.
It’s not of course the person on housing benefit driving the scam but those who lend the money. The social tenant may well end up as the biggest victim in the whole process.
Right to buy scam 1
The lender agrees to accept supposed family members’ incomes in adding up the purchaser’s total revenues. This should be stopped under the Housing and Planning Act, because supposedly buying tenants must show their incomes are sufficient.
Right to buy scam 2
The lender pays the borrower a “second income” through a totally unrelated company. This increases the borrower’s supposed total income.
The commitment to repay this “second income” becomes a payday loan that never appears in the formal documentation.
This one is more difficult to spot.
Right to buy scam 3
Converting your freehold home into a leasehold one.
This scam involves the lender agreeing the funding in exchange for converting the property to leasehold tenure, either as part of a new purchase or as a means to clear existing mortgage debt for historic right to buy owners.
Some years later the ground rents kick in.
These are ground rents the leaseholder has not noticed and cannot afford.
Surprise, surprise the leaseholder then loses the home to the lender. We understand this is a popular system in the Birmingham area, where somehow or other lenders become aware of right to buy owners who have fallen on hard times.
Right to buy scam 4
Here the deal is simple: the tenant is offered a sum of money to “buy” the home on condition that he then sells it to the lender.
The deal is that the tenant gets some money and goes back to his previous rental for a fixed period. The problem is at the end of this period, the victim then faces commercial rents and has lost the home.
Right to buy scam 5
This may be far and away the biggest “scam” because it is legitimate.
There are a substantial number of residential social landlords (RSLs) and ALMOs (Arm’s-Length Management Organisations that run council’s housing stock) that allow right to buy flats to be sold without the buyer having any real idea of future costs.
It gets worse though because the prospective right to buy leaseholder is often told by the RSL or ALMO that there are no known major works costs.
They caveat this with the comment that the buyer should consider appointing his own surveyor, which would of course mean checking the entire block at considerable expense.
When these providers claim that they are not aware of future costs that it not quite true.
It is not unknown for someone to buy a right to buy flat and be told that there are no major works proposed and then to be presented with an estimated bill for £20,000 three months later.
Unfortunately, many ALMOs and SRLs have poor accounting systems that pass on large costs to the right to buy leaseholders, when in reality some of those costs are little more than guess-work.
ALMOs and SRLs claim no knowledge of future costs partly because of how they believe they are meant to work under government guidance.
Often they have one huge maintenance contract for their estates without specific calculations for future costs to individual blocks in individual years.
Instead, there is just an overall budget spend per year across the estate, which is allocated depending on what the provider thinks is best for their estate.
By structuring things this way for the council rental tenants, these providers then deem the costs only likely to arise for a specific block shortly before the works are actually due to start.
Some of these providers then claim they do not have full “condition reports” on their buildings so are not aware of likely future costs.
LKP would respectfully suggest such claims are rubbish and that all major RSL or ALMO employ professional surveyors on an on-going basis.
That these surveyors have not produced a specific figure for the future cost of works does not mean they are not fully aware of the general condition of the buildings and the likely issues that will need to be addressed in the next five years.
So, the right to buy new homeowner gets wiped out with a massive (and predictable) major works bill.
There are 50 leaseholders facing bills of £50,000 each from Oxford City Council at present.
The trusty government investigators will of course think they know of some or maybe all of these scams, and perhaps more.
But it is almost certain that they then miss subsequent re-sales, which do not appear and where everything seems “normal”.
Some of these properties are sold on without appearing on the Land Registry.
You do it like this, avoiding tax man as well as the Land Registry: simply grant a power of attorney over the property.
In this way it appears to continue to be owned by the right to buy purchaser, when in reality is controlled by the lender or a related company.
“It is not unknown for someone to buy a right to buy flat and be told that there are no major works proposed and then to be presented with an estimated bill for £20,000 three months later.”
See s.125A & s.125b preventing a landlord from charging for any repairs/maintenance/improvements for the first 5 years following the RTB, where the repairs/maintenance/improvements have not been specified to the Leaseholder during the RTB process.
Both points are correct.You mean the provisions under the 1985 Housing Act as part of an initial RTB this obliges details to be provided regarding the specified period of future costs. However the problem is these righted do not pass to subsequent purchasers of the RTB lease when they ask the ALMO/RSL about future costs. Hence the statement “it is not unknown” rather than this is what applies in every case.
As ever the semantics make these issues ridiculously complex. We should also have set out that at all times it’s the lease that’s being purchased not the flat itself.
If I understand you correctly Martin, you say that the rights granted by Section 125a and 125b do not get passed to the person purchasing the reassigned lease. I do not believe this is correct. In the unlikely event the lease gets reassigned within the first 5 years (which would mean the part of the discount has to be repaid to the council) the new leaseholder gets the same rights as the original Right to Buy tenant.
The problem is that most conveyancing solicitors have no clue about Right to Buy legislation, so might be misleading their clients.
Re; Oxford leaseholders- has anyone referred them to Waaler v Hounslow  UKUT 0017 (LC)?
Just to add to the above for those interested in the issue of validity of Section 125A and B notices on reassignment check Smith v Southwark  UKUT 295 (LC)
I an not suggesting s125 rights do not pass within the relevant period accepting the number of sales also likley to be limited becasue of the discount rules.. I am saying the rights do not apply in those circumstances where the 125 rights no longer apply and would agree with you they can also be lost with in the 125 period if the conveyancing solicitor is not aware of the rights.
I make clear again we are not suggesting this problem happens in every sale but that its a major issues for a number of RSL and ALMO sites where there can be some distance between what the law says should happen and reality. The ability of the leaseholder to represent their rights against the landlord who has the resources of a full legal team can often lead to an imbalance of arms.
In the example we gave of £20k costs arising within a few months of the sale the RSL went so far as to deny the fact that the purchaser had any right to rely on the sellers pack provided by the RSL as part of the sale.
The Smith v Southwark case is reviewed on the Law and Lease site run by Amanda Gourlay.
This appears to be a general problem within Leasehold in that there are different types of Leasehold.
1. Leasehold including the Fee Simple – you are buying bricks and mortar – not a piece of paper
(i) Now this Deed Witnesseth – v – now this Lease Witnesseth
(ii) ask a High St. Lender straight, Do loan against a piece of paper or bricks and mortar?
2. Commercial Residential Leasehold – Licence to print money
(i) this is something which appears to have come in within the last decade
3. Retirement Leasehold – run the old people out of time and hope for the best
4. Council Leasehold Leases which include both Tenants and Leaseholders – open to abuse as to any dispute the council will revert to what the Tenants are governed by – they pay a reduced sum and the Lessee pays the full whack
Lawyers today are no longer taught law (land & property law) and clearly Managing Agents are leading the way as to Consenting Connivance