FSA warns of ‘serious problems’ in lease options market

The FSA has warned about the emerging lease options market and said in most cases it considered it to be akin to sale-and-rent-back, a market it has effectively regulated out of existence.

The FSA’s head of financial conduct and chief executive designate of the Financial Conduct Authority Martin Wheatley made the comments at the regulators annual public meeting yesterday.

It was prompted by a question from the floor at the event requesting an update on the sale-and-rent-back market and whether the regulator was aware that lease options firms were now replacing sale-and-rent-back firms.

In response Wheatley said the regulator was aware of lease option firms and that this was a sector that was starting to emerge.

A lease option, more formally known as a lease with the option to purchase, is a type of contract used in both residential and commercial property deals. In a lease-option, a property owner and tenant agree that, at the end of a specified rental period for a given property, the renter has the option of purchasing the property.

A lease option is different from a lease purchase, in that a lease purchase binds both parties to the sale, whereas in a lease-option the buyer has the option but the seller does not.

Wheatley says: “In many cases we consider the lease option formula to be the same as a sale-and-rent-back, therefore it requires permission and has to go through our authorisation process.

“If the questioner or anyone else has intelligence on the development of this lease option market we’d be keen to know, but we think there are serious problems in this market and we don’t like what we see.”