Should you still consider a ‘rent to buy’?

Selling to a sitting tenant is one of the more attractive exits available to a landlord today, as I said in this article. It is therefore unsurprising that “rent to buy”, where someone wishing to buy first becomes a tenant for a few years before the sale is concluded, is also of great interest to both landlords and tenants.

I’ve recently been asked a number of times if this still works under the Renters’ Rights Act 2025, I guess because I wrote and published the first book on what the Renters’ Rights Bill 2024 proposed.

My response is that for private landlords, the answer would seem to be no. There is a caveat: if a landlord is undecided about selling, in other words it does not matter to them one way or another, a variant of the old model could still work.

The old model

Traditional consumer Purchase Lease Options (aka ‘rent to buy’) models are typically a mechanism where the tenant is helped to build up a deposit pot whilst living in and maintaining the house they wish to eventually buy. The pot is then used to qualify the tenant for a mortgage or a better rate one. They worked like this:

1. The landlord granted a fixed term assured shorthold tenancy, typically for two to five years, and alongside it a separate option agreement giving the tenant the right to buy at a price fixed or by formula.
2. The tenant paid an upfront option fee and a monthly figure above market rent, the excess being credited towards the deposit or the price.
3. The option could be protected at the Land Registry by a unilateral notice, giving the tenant some form of peace of mind.
4. The fixed term provided the certainty the landlord needed before committing to sell at a fixed price years ahead.
5. Section 21 was relied on to evict the tenant if they got to the end of the option period without a mortgage offer, or they seriously breached other terms of the agreements.
6. The option fee and the accumulated credits were kept by the landlord if the tenant pulled out.

Renters’ Rights Act 2025

The Renters’ Rights Act 2025 recognises ‘rent to buy’ arrangements because it created a dedicated possession ground for them in Ground 1B. Ground 1B is, however, available only where:

1. The landlord is a private registered provider of social housing.
2. The agreement provides for the tenant to pay rent no higher than 80% of market rent, with rent and market rent both including any service charge, and gives notice that the landlord intends, after a period stated in the agreement of not less than five years, or ten years for properties in Greater London, to offer the property for sale to the tenant.
3. The landlord has complied with any obligation to offer the property to the tenant (the minimum notice period is four months).

Regarding private landlord ‘rent to buys’:

1. A fixed term period would contravene the Act. All assured tenancies are now periodic, and a tenant may end the tenancy on two months’ notice at any point.
2. Purporting to let for a fixed term breaches section 16E, attracting a civil penalty of up to £7,000, rising to £40,000 for a repeated or continuing breach. The option period and the tenancy have therefore been decoupled because whatever the option agreement says, the tenant can leave when the tenant chooses.
3. ‘Rent to buy’ deposit pots are typically financed by money taken at or near the start: an option deposit, and afterwards, monthly “rent credits” accumulating towards the purchase price. Each of those is now most likely unlawful to ask for and/or receive. Nothing may be taken by way of rent before the tenancy agreement is signed, and after signing no more than one month’s rent in advance may be required. Anything outside these is a prohibited payment under the Tenant Fees Act 2019.
4. Any rent set above market to fund the credits is vulnerable during the first six months of the tenancy. During this window, a tenant may apply to the First-tier Tribunal to challenge the rent payable. Following a determination, this is the open market rent if lower than the tenancy rent.
5. Money taken in connection with the tenancy that is not clearly referable to identified rent periods risks being treated as a tenancy deposit instead, which is capped at five weeks’ rent and must be protected.
6. An option fee required as a condition of the letting is, at the very least, arguably a prohibited payment attracting its own penalties, although there is also the argument that it is more referable to the envisaged purchase than the letting.
7. What if the tenant gets to the end of the option period without a mortgage offer, and the landlord now wants the property back to sell it elsewhere? If so, the relevant possession ground to use would be Ground 1A. For this, the notice cannot expire within the first twelve months of the tenancy, and the landlord must give at least four months’ notice to the tenant. The Ground also triggers a restricted period running from the date the notice is served until twelve months after the relevant date stated in it. In practice that will be around sixteen months from service during which the property cannot be let, licensed for money, or even advertised to let. Breach is a criminal offence under section 16J, carrying a civil penalty of up to £40,000, and exposure to a rent repayment order of up to twenty four months’ rent. The restriction is triggered by relying on the ground, not by succeeding on it, and remains live during the period.

The way forward?

There are three methods that would seem to work when selling to tenants.

I discussed the first one in this article [LINK] as mentioned above.

The second one is to take the arrangement out of the tenancy regime altogether, which can be done by executing:

1. an exchange of contracts with delayed completion,
2. an instalment sale, or
3. a lease granted for a term of more than 21 years at a low rent.

These, however, come with commercial problems that a lot of landlords may find too risky, and may therefore jeopardise any potential deal:

• getting a lender’s consent,
• obtaining the freeholder’s consent if the property is leasehold,
• the financial services ramifications where payments are effectively deferred purchase instalments,
• the ‘unfair trading’ laws and rules, and
• the buyer’s exposure if the landlord’s own creditors wish to enforce against the property first.

The third is the mentioned variation of the old model. It is where a landlord doesn’t necessarily want or need to sell. If the tenant cannot buy, the tenancy will simply carry on. As such, the landlord would end up having offered an option to buy at an agreed price or formula, granted for no premium, alongside a tenancy at market rent with no credits and no advance payments. If so, the compliance problems would disappear, but so would the deposit pot, which was the whole attraction for the tenant. What would be left would be a standing promise to sell, which might be worth having, but I’d question if this is a ‘rent to buy’; the reason why I’ve described it as a variant of the old version.

Final

Should landlords and/or tenants still consider a ‘rent to buy’? You decide.

Patricia Ogunfeibo is a non-practising solicitor and non-practising Chartered Tax Adviser and small developer. She has been a landlord since 1986 and is the founder of tenant2owner, a homeownership education platform for renters in England.