MCOB 2.6A 1Protecting customers' interests: home purchase plans and home reversion plans

Circumstances that a firm should consider include how the customer will be protected in the event of:

1. (1)

   the failure of a reversion provider or home purchase provider;

2. (2)

   the transfer of a reversion provider's or home purchase provider's interest (or the interest the provider would have had, had it not nominated a third party to hold it) in the property to a third party;

3. (3)

   other dealings by a reversion provider or home purchase provider (or its nominee) with a third party; and

4. (4)

   a reversion provider's or home purchase provider's (or its nominee's) failure to perform obligations owed to third parties, or imposed by statute.

The steps that a firm might take in order to protect its customer's interests will depend on a number of factors, including the nature and structure of the home purchase plan or home reversion plan and the jurisdiction in which the property is situated. If it is not possible to achieve reasonable protection (for example, due to impediments under a particular legal system) then a firm should not enter into, arrange or administer the plan.

1. (1)

   In the FSA's view, a customer's interests will include:

   1. (a)

      protection of the customer's rights under the plan, in particular the right to occupy the property throughout its term;

   2. (b)

      protection of any interest (legal or beneficial) that the customer retains, acquires or is intended to acquire in the property, including the expectation that such interests will be unencumbered by third party interests; and

   3. (c)

      that, where a customer pays sums under a home purchase plan towards the purchase price of the property, those sums will be applied towards the purchase price. Or, in circumstances where that is not practicable (for example, on repossession), that an appropriate amount will be returned to the customer.

2. (2)

   The protections that a firm should consider include:

   1. (a)

      the extent to which different forms of tenure protect the tenant's right to occupy the property and afford protection against removal. In particular, granting the customer a licence to occupy the property is unlikely to provide an adequate level of security;

   2. (b)

      (except in Scotland) the need for any agreement under which a customer has a right to acquire an interest in the property to be specifically enforceable;

   3. (c)

      the extent to which appropriate registrations, restrictions, notices or other entries should be made in the relevant land register;

   4. (d)

      the timing of entries in the relevant land register and who should be responsible for making them; and

   5. (e)

      the customer's need for a full and clear understanding of all the steps that the firm expects him or his advisers to take to protect his interests both at the time the plan is entered into, and throughout its duration.

Firms remain responsible for ensuring that their customers' interests are protected to a reasonable standard.

A home purchase provider should consider obtaining confirmation from the customer's legal adviser that he has carried out, or will carry out, the steps that the firm expects the customer or his legal advisers to take to protect his interests at the time the plan is taken out.

A firm is unlikely, for example, to be treating its customer fairly in relation to termination of a home purchase plan or home reversion plan if:

1. (1)

   the grounds on which it may terminate all or part of a plan are unduly wide, or on which a customer may terminate are unduly narrow; or

2. (2)

   the customer is not given appropriate notice of termination.

A firm is also unlikely to be treating its customer fairly if, upon termination of an agreement under a home purchase plan or home reversion plan, the customer does not receive (net of any reasonable sums payable by the customer):

1. (1)

   in the case of a home reversion plan where the customer retains a beneficial interest in the property, the value of that beneficial interest; or

2. (2)

   in the case of a home purchase plan, the value of purchase payments made.

A firm is unlikely, for example, to be treating a reversion occupier fairly if:

1. (1)

   the reversion occupier is obliged to maintain the property to a standard which exceeds the standard that the property is in when the home reversion plan commences;

2. (2)

   the reversion occupier is not entitled to, or is not given, reasonable notice of an inspection, or the inspection is conducted in a way that is biased against him;

3. (3)

   unreasonable restrictions are imposed on who may occupy the property, taking into account the potential needs of the reversion occupier throughout the duration of the home reversion plan;

4. (4)

   unreasonable restrictions are imposed on the uses to which the property may be put;

5. (5)

   the reversion occupier is unreasonably treated as having abandoned the property. For example, it is likely to be unreasonable to treat a property as abandoned based only on a period of non-occupation;

6. (6)

   where the reversion occupier has a reasonable expectation that the home reversion plan can be transferred to another property, agreement to such a transfer is, or can be, refused unreasonably.

Members of the Royal Institution of Chartered Surveyors, for example, are required to operate a complaints procedure that allows the complaint to be referred to an independent person whose decision binds the valuer and which, in the FSA's view, provides a customer with an appropriate remedy.

It is recognised that a balance has to be struck between the need to sell the property as soon as possible, and other factors, such as market conditions, which may prompt the delay of the sale. Legitimate reasons for deferring action might include the expiry of a period when a grant is repayable on re-sale, or the discovery of a title defect that needs to be remedied if the optimal selling price is to be achieved.

A person may enter into a home reversion plan as provider without being regulated by the FSA (or an exempt person) if the person does not do so by way of business (see PERG 14.5). If a firm arranges for such a person to enter into a home reversion plan as provider, the firm will be responsible for ensuring that the reversion occupier's interests are protected to a reasonable standard, even if the reversion arranger is not acting for the reversion occupier. A reversion administrator is under the same obligation in relation to a reversion occupier under a home reversion plan which it administers on behalf of an unauthorised reversion provider.