01 Mar 2012

Tenanted Properties and Sneaky Borrowers

Tenanted Properties and Sneaky Borrowers

Kirsty Allen, Solicitor, looks at what heritable creditors can do when faced with tenanted properties located in Scotland.

Kirsty Allen, Solicitor, looks at what heritable creditors can do when faced with tenanted properties located in Scotland.

More and more ‘sneaky’ borrowers are emerging who have come to realise that by granting tenancy agreements over their properties, they can delay possession being taken by the lender that has obtained a repossession decree.

It is trite Scots law that a tenant with an assured tenancy granted in their favour has their own security of tenure and as such cannot be ejected from a property on the back of a repossession decree granted against the landlord. This was originally decided in Tamroui v Clydesdale Bank plc. In that case, it was decided that a tenant cannot be evicted from a property without first obtaining an order for possession against the tenant under the Housing (Scotland) Act 1988.

That common law position has now been firmed up into legislation. The Housing (Scotland) Act 2010 amended the Conveyancing and Feudal Reform (Scotland) Act 1970 and the Heritable Securities (Scotland) Act 1894 by inserting provisions which explicitly state that a decree for repossession is not an order for possession of a house let on an assured tenancy.

We are now encountering increasing numbers of cases in which a first ejection has to be cancelled due to there being a tenancy agreement. We subsequently terminate that tenancy agreement, only for a second ejection to be cancelled because the borrower has granted a tenancy agreement to new tenants.

In such circumstances, the lender’s remedy is to seek an interdict (equivalent of an injunction) preventing the borrower from granting any further tenancy agreements over the property. The court must be satisfied that there is a real risk of further tenancy agreements being granted by the borrower before a decree for interdict will be granted.

Should the borrower grant a further tenancy agreement after the interdict and thereby breach the interdict, the borrower may be held to be in contempt of court. In such circumstances, the sanction from the court can be a fine or imprisonment. However, in our experience, the raising of breach of interdict proceedings usually results in the tenant leaving the property (likely coerced by the borrower) and thus allowing possession to be taken.

We appreciate the frustrations that many of our lender clients share on this matter. However, we do not envisage there being any changes to the current legislation in the near future to try to counteract these ‘sneaky’ borrowers. All recent Scottish legislation regarding tenancies has sought to strengthen the protection of tenants and as such it is unlikely that the legislature will do anything that would allow lenders to eject tenants on the back of a decree for repossession granted against the borrower.

Kirsty Allen, Solicitor

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