House Prize Competitions: is it worth the gamble?

In a world where selling houses is becoming increasingly more difficult, and with the continual fluctuation in house prices and mortgage difficulties, it is unsurprising that homeowners are turning to less conventional ways of selling their properties. One such method which is becoming increasingly more popular (albeit not yet mainstream) is sale by way of "house competition" - dubbed by some as a "house raffle".   

The simple concept is as follows:-

  • A competition is held whereby the homeowner's property is the prize.
  • People can then enter the competition by (for example) buying tickets or paying to enter the competition; the cost of entry being nominal when compared to the value of the house. 

The aspiration is that the aggregate entry fees will exceed the amount a homeowner would realise if selling the property in the normal manner; whilst the ultimate winner of the competition will become the new owner of the property at minimal cost. Past house competitions have seen entry fees set as low as £2!   

A "win-win" situation then? Whilst at first glance, house competitions might seem like the perfect answer to the potential vagaries of the housing market – house competitions are not without risk. In particular, if structured incorrectly, the property owner risks committing a criminal offence. Some of the key risks and considerations surrounding house competitions are explored further below.

Illegal lotteries

One significant risk with house competitions is the risk of the competition being construed as a lottery. If the competition is deemed to be a lottery, it will be subject to the statutory control of the Gambling Act 2005 and is highly likely to be unlawful – except in the (unlikely) event that the competition is licenced by the Gambling Commission or it falls within an exemption.

Briefly, a house competition will be structured as a simple lottery if:-

  • there is an entry fee;
  • one or more prize is allocated (e.g. a house in these circumstances); and
  • the allocation of the prize(s) to the winner is wholly by chance.

To avoid the house competition being deemed a lottery and therefore illegal, some have sought to structure their competitions as "free prize draws", or more commonly, as genuine prize competitions; both of which fall outside the ambit of the 2005 Act. This, however, introduces its own complexities…

For a house competition to be deemed a genuine prize competition and to be distinguished from an illegal lottery, success must depend on the exercise of skill, knowledge or judgement (rather than on chance alone). Whilst this hurdle might sound straightforward, the competition must require a sufficient level of skill, knowledge or judgement from participants. Knowing where to benchmark this or what mechanism to use is no easy task! This is not helped by the fact that your house competition may still be considered an illegal lottery, despite the introduction of a skill element. We have seen recent examples of competitions be investigated and shut down by the Gambling Commission when relying on a question or series of questions to satisfy this skill requirement. The guidance on what will and will not satisfy the legislative requirements is far from clear-cut, there is real scope for subjective interpretation. As such we have seen some move towards an alternative option – relying on a 'spot the ball' picture element.

Administering the competition – more rules?

Yes, you guessed it - more rules!

When actually administering the competition (assuming it is structured as a genuine prize competition), a further set of rules come into play. These are contained within the UK Code of Non-broadcast Advertising, Sales Promotion and Direct Marketing (the 'CAP Code'). Whilst the CAP Code is generally aimed at businesses, as a matter of best practice, it is recommended that any house competition is administered in compliance with the same. This includes, for example, producing a full set of terms and conditions for the house competition. Failure to do so may result in enforcement action being taken.

What other hurdles are there?

Even if the house competition is legally recognised and correctly administered as a house prize competition, this type of property transaction may still give rise to other questions and risks (both legal and otherwise); especially given its novel nature. Examples include:-

  • What will happen if an insufficient number of tickets are sold to warrant transfer of the house?
  • How will the property be transferred to the winner? Are there any conveyancing formalities that need to be satisfied?
  • What (if any) are the tax implications and considerations (e.g. stamp duty land tax)?
  • Are there any relevant data protection requirements? Will these be satisfied?

NB: The Law Society of England & Wales has recently published guidance on this very topic for solicitors. In summary the guidance advises solicitors to approach any prize competition involving real property with particular caution. It is recognised that such competitions can be used as a cover for fraud and/or money laundering.

So is it worth the gamble?

If all of the above can be satisfactorily addressed by the home owner, then selling your house by way of a house prize competition may well be worth the gamble!

Nevertheless, whilst there may be a clear appeal to disposing of your property in this way, the risks and uncertainties are real and should not be overlooked. Anyone considering pursuing this route (or even simply entering a house competition) should therefore ensure that they first seek professional advice.  

Continuing the theme of prize competitions, for an article which looks at the use of social media in the context of prize competitions, see here.

For more information, please contact David Thompson, Partner in the Commercial team on david.thompson@michelmores.com  or 01392 687656.