11 Dec 2015
Paul McIntosh, Associate, looks at repossession in the context of corporate bodies.
This Sheriff Court case concerned an action for repossession under the Conveyancing and Feudal Reform (Scotland) Act 1970 (‘the 1970 Act’). The lender, Westfoot, was a finance company offering short term bridging finance to borrowers in the UK financial market. The borrower, EPH, was a property development company incorporated in Panama and having its principal place of business in New York.
EPH owned residential properties at Gloucester Square and Gloucester Place in Edinburgh. In March 2013 EPH entered into a fixed term loan agreement with Westfoot whereby they borrowed £285,000 for 6 months at 1.5% per month interest. In security of the obligation to repay the loan, EPH granted two standard securities in favour of Westfoot over the two properties they owned in Edinburgh.
The term of the loan expired on 2nd October 2013. The balance due by EPH became payable on that date. EPH did not pay the balance on that date nor had they made any repayments to Westfoot since the loan was advanced.
In January 2014 Wesfoot commenced legal proceedings to recover the outstanding balance. The usual process was followed by them under the 1970 Act: a default notice, a calling-up notice and occupier notice were served on EPH; a notice was sent to the local authority under s. 11 of the Homelessness etc. (Scotland) Act 2003. Westfoot also lodged a Form 11C with the court in terms of satisfying the Pre-Action Requirements (PAR) under the 1970 Act.
The issues raised by EPH who faced losing its properties through repossession were: (1) as the properties were residential, when enforcing the security, Westfoot required and had failed to comply with the rules in the 1970 Act aimed at protecting homeowners from being unfairly removed from their homes; (2) because the legislation governing the ejection of a borrower from a property refers to the proprietor being in “personal occupation” of the property (s.5(1), Heritable Securities (Scotland) Act 1894 (‘the 1894 Act’)), it could not be used to eject a legal person (such as a company) from a property.
The Sheriff rejected both of these arguments and found in favour of Westfoot. The Sheriff took the view that a secured property used for ‘residential purposes’ under the 1970 Act must be used as a ‘home’. But not just anyone’s home; the property must be a home used by the following people in order to fall under the strict protection of the 1970 Act:
In the Sheriff’s view, the focus of the 1970 Act on the ‘home’ aspect of the secured property was especially compelling given s.24(7)(e) of the 1970 Act - consideration by the court of the borrower’s ability to secure alternative accommodation - which only made sense if referred to natural not legal persons i.e. companies. A legal entity such as a company does not have a home in the sense that it would need to find alternative accommodation in the event of an action for possession and ejection being granted over property it owns.
A similar reasoning was applied to EPH’s second argument. ‘Personal occupation’ under the 1894 Act was taken to mean actually occupying the secured property as a natural person (or human being) would do. EPH being a company and not actually occupying the secured property, an ejection could be carried out.
The Sheriff granted Westfoot warrant to repossess the secured properties. The insight provided by this decision is that where a company or legal person faces repossession, the same strict regime of protection afforded to customers cannot necessarily be relied upon to frustrate the lender’s action.