What to watch out for if you are a landlord, outgoing or incoming tenant involved in transferring entitlements

Problems can arise between landlords and outgoing or incoming tenants, agreeing a transfer of entitlements although both parties tend to have their own agents negotiating a transfer price for them.

We have noticed, however, that the agents or individuals involved in such transfers, having agreed a price between the parties, are then subsequently more and more often asking us to process the transfer on their behalf, as if it was a sale on the open market.

We do not charge any commission for this service, only a small fixed price. This gains the benefit of us spotting potential problems before they occur, dealing with the RPA, and most importantly issuing up-to-date contracts covering all situations, in case something should go wrong. It also, certainly with individuals (which may involve less than convivial relationship between landlords and outgoing tenants) resolves the problem as to when the purchase monies should be handed to the transferor.  Do you transfer the monies before the application is made to the RPA, or after the transfer has been confirmed in writing by the RPA? As entitlement agents we collect the money in advance and hold it on a stakeholder account subject to the sale contract which details exactly when and how the monies should be paid out, and what happens if there is a problem with the transfer.

An example of when things can go wrong

To illustrate this we recently had a situation where the RPA sent us written notification that a transfer could not be processed. Of course the advantage with the online system is that written confirmations can be sent out within a matter of hours, but likewise, with the problems the RPA continue to have with their system, notifications can be received relatively quickly to confirm that the application has been rejected.

A purchaser, who was intending to make a BPS claim themselves, decided at the last moment instead to transfer the entitlements to a tenant. They overlooked the fact that to receive entitlements you had to be an active farmer, to enable them to then pass them on to their tenant, and omitted making the active farmer declaration having also not submitted a BPS claim before. Subsequently the application to transfer entitlements to them was rejected, and their transfer to the tenant failed as well. The Purchaser was given, as set out in the sale contract, a period of time to try and sort this out with the RPA, but failed. As a result there were no arguments, as the contract allowed the Vendor to re-market the entitlements, selling them in this instance at a higher price. Our contracts allowed the Vendor to keep from the purchase monies the sale proceeds originally agreed, with the Purchaser receiving their money back (less the Vendor’s extra costs) plus the higher price achieved in this instance on the re-sale. It can of course work not so well for a purchaser if the market price goes down.