02 Sep 2013

Property Guardianship in Scotland

Property Guardianship in Scotland

Laura Dunlop, Trainee Solicitor, discusses the legal implications and risks arising from the growing trend for property guardianship in Scotland.

Laura Dunlop, Trainee Solicitor, discusses the legal implications and risks arising from the growing trend for property guardianship in Scotland.

With rent rising, people are looking to find novel means of rent property inexpensively. In addition, lenders are looking for ways to protect the security of their properties which are sitting empty whilst on the market.

Consequently, a relatively recent trend has begun for property guardianship companies to ‘lease’ their properties to a property guardian who will look after the property for a nominal rent. The owner of a property enters into an agreement with the guardianship company authorising them to provide its services to secure the owner's vacant properties. Guardian firms then vet individuals to live in the properties that are empty or are still being built are at risk from break-ins or vandalism.

The vetting process involves carrying out criminal record and reference checks on the potential guardians. Rather than using a tenancy agreement, the companies grant non-exclusive licenses to guardians to occupy a particular property. Upon termination of the agreement between the property guardianship company and the owner, the licence between the company and the guardian automatically terminates, which prevents guardians from acquiring any tenancy rights. The costs of the service vary according to location and of property.

Some companies provide their guardians with basic training in health and safety, legal issues and easy maintenance, and are supplied with mobile phones for emergencies and monitoring.

Typical guardians include professionals working away from home and wanting a low-cost alternative to renting an apartment, students or those whose relationships have broken down and who find themselves unexpectedly without a place to live.

From a legal perspective, it is important to note that there are very few legal authorities on the matter of property guardianships. There appears to be very little regulation of the area and the legal guidance in Scotland is very limited, and restricted guidance has been offered by the Scottish Government, the FCA or MCOB.

Guardianship companies argue that their 'guardian licences' are legally binding and provide a watertight temporary occupation license between the company and the guardian. However, the Scottish Government has raised concerns in a review of the private rented sector entitled ‘Bringing Private Sector Empty Houses Into Use’, that such a licence could constitute a tenancy in Scotland with appropriate protection from eviction for the tenant.

This is due to the fact that the term ‘licence’ has no technical meaning in Scots law. It is generally used to denote a contract in which a right of occupation of heritable subjects is conferred, where the contact is not a lease. The occupier’s right is therefore merely personal and contractual, and does not attract any of the rights of tenants under the security of tenure legislation. For example:

  • The rule of tacit relocation does not apply to licences.
  • The rights to notice on termination of a lease do not apply to licences, though it would appear that a licensee is still entitled to ‘reasonable notice’ of an eviction.
  • At common law, on the expiry of the contract, the licensee has no further right or title to remain in occupation, and may be ejected without a court order. However a court order is now required by virtue of section 23(2A) of the Rent (Scotland) Act 1984, provided that the licence does not fall into any of the categories described in section 23A.
  • The statutory schemes for security of tenure only extend to leases

In England, the distinction between leases and licences has been discussed in numerous cases, because of the many and various attempts made by private landlords to defeat security of tenure by creating licences rather than leases. These practices have never caught on in Scotland, so it has not been necessary for the Scottish courts to consider the issue; therefore there little authority is available in Scots law on the lease/licence distinction. However in Brador Properties v British Telecommunications Plc 1992 S.C. 12 it was held that the fact that a document describes itself as a licence need not prevent it from actually being a lease if all the necessary requirements for the latter are present. This is especially the case if the attempt to create a licence is an obvious sham designed to avoid the legal consequences of being a lease.

In another case, Conway v Glasgow City Council 1999 S.C.L.R. 248; an attempt by a landlord in the social rented sector to avoid the application of the 2001 Act by creating a licence or occupancy agreement appeared to be unacceptable by the wide definition of ‘tenancy’ given in s. 41 of the Act.

Nevertheless, licences (or rights of occupation) do exist and are even recognised, although not defined, by statute.

One point to emerge from the confusion surrounding the distinction between licences and leases is that in each individual case much will depend upon the terms of the agreement and the general circumstances of the case.

In practice, due to the ambiguity surrounding the law on property guardianships in Scotland and the potential litigation risks involved for all parties, it is inadvisable to recommend this as a failsafe option until the courts have put forward their opinion on the matter.

Laura Dunlop, Trainee Solicitor

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