Heritable creditor “in possession” : Upper Tribunal clarifies creditors’ responsibilities for statutory repairing duties

25 Jan 2024 3 min read

In a significant decision, the Upper Tribunal has confirmed that a heritable creditor with an entitlement to possession, but which wasn’t in possession, was not responsible for the landlord’s statutory repairing obligations. In doing so, the Upper Tribunal overturned the decision of First-tier Tribunal for Scotland (Housing and Property Chamber) at first instance and clarified an important principle of law and practice concerning enforcement of security over Scottish real estate.

The First-tier Tribunal for Scotland (Housing and Property Chamber) (the “FTT”) is a specialist tribunal with jurisdiction to deal with issues in private sector housing (including determinations of rent or repair, and issues arising between homeowners and factors). The Upper Tribunal is the appellate tribunal.

The full facts of the appeal can be found here : Decision, but in summary:

the property in issue was owned by an individual (the “owner”), and a standard security (the equivalent of a legal mortgage in England and Wales) was granted over the property shortly after it was acquired. The property was subsequently leased out to individuals (the “tenants”);
the Upper Tribunal heard that on 9 December 2021, the heritable creditor (“mortgagee” in England and Wales) obtained decree against the owner, which entitled it to enter into possession of the property;
although the heritable creditor had commenced proceedings for the eviction of the tenants, these proceedings were still pending when the tenants made an application to the FTT that their “landlord” had failed to comply with the repairing standard set out in the Housing (Scotland) Act 2006 (the detail of which is set out here: Repairing standard guidance); and
the FTT had looked at the interaction between the Conveyancing and Feudal Reform (Scotland) Act 1970 – which Act still provides the foundation for rights of heritable creditors as regards standard securities and the property secured by them – the Housing Act 2006, associated legislation and academic commentary and determined that “a heritable creditor in possession… [is] ‘treated as’ the landlord for all practical and legal purposes pertaining to lease arrangements” and, accordingly, was responsible for the landlord’s repairing obligation.

The Upper Tribunal was then asked to consider three propositions:

i. A heritable creditor with an unenforced decree for possession is a heritable creditor “in possession”.

ii. A heritable creditor who seeks to sell a property under the calling up process has assumed the status of a landlord.

iii. A heritable creditor who holds an unenforced decree for possession for the Sheriff is a landlord for the purposes of the Housing (Scotland) Act 2006, and specifically the repairing obligation.

It determined that a distinction exists within the relevant authority between a “heritable creditor” and a “heritable creditor in possession” and that in this case the heritable creditor was just that as, on the facts, it was not in possession of the property. Instead the owner remained the landlord, and the party obliged to comply with the statutory repairing obligations.

This decision is a useful reminder of the nuance that exists in this very technical, statutorily outlined area of law and practice, and the importance of maintaining clarity throughout each step of the process as to the particular role each party holds.

For advice on any aspect of the decision, enforcement of standard securities or the rights of heritable creditors generally, please contact Amy McVey, Christopher Bartlett or your usual Burges Salmon contact.