Creditor not yet in possession of secured rental property could not be landlord for repairing standard purposes

Creditor not yet in possession of secured rental property could not be landlord for repairing standard purposes

The Upper Tribunal for Scotland has dismissed a repairing standard application raised by two tenants against the creditor of their former landlord after an appeal was made against the First-tier Tribunal’s decision that the creditor could be regarded as the landlord for the purposes of the application.

Pepper UK Ltd, which had an unenforced decree for possession of an Edinburgh property that was rented to respondents Jade Alvey and Marc Rendle, argued that the FTS had erred in finding that it had assumed the status of the landlord.

The appeal was heard by Sheriff Tony Kelly of the Upper Tribunal. Written representations were made by the appellant but not by the respondents.

Mere entitlement

The respondents originally entered into a tenancy of the property in September 2020 with landlord Mr Fever. In January 2007, shortly after his purchase of the property, Mr Fever granted a standard security over it in favour of GMAC-RFC Ltd, which later assigned the security to Pepper UK Ltd. On 9 December 2021, the appellant obtained decree from the sheriff court finding it entitled to enter into possession of the subjects, although this had not been enforced at the time of the FTS application.

On 3 March and 18 November 2022, notices to leave were served upon the tenants. However, prior to this, they had raised a repairing standard application in which Pepper UK was named as the landlord. The FTS directed that a hearing take place to determine whether Pepper UK was properly convened as the landlord in the application.

In its decision, the FTS decided that the heritable creditor of the original landlord was the landlord for the purposes of the Housing (Scotland) Act 2006. It had regard for section 20(5) of the Conveyancing and Feudal Reform (Scotland) Act 1970, which provided for deemed assignation to a creditor in lawful possession of rights and obligations of the proprietor relating to leases. The Tribunal reasoned that the obligations transferred must include those relating to the repairing standard, notwithstanding the fact that the creditor did not yet have possession.

The appellant submitted that a mere entitlement did not of itself constitute possession. The FTS was wrong to find that a heritable creditor who sought to sell a property had assumed the status of a landlord. Further, the sheriff’s decree granted Pepper UK a limited power of entry to carry out certain repairs, a power which would not be needed if the creditor also acquired the landlord’s repairing obligation.

Elides the distinction

In his decision, Sheriff Kelly said of the relevant statute: “The provisions of the 1970 Act relied upon by the FTS have application where the heritable creditor has entered into possession of the subjects over which a security has been granted by the creditor. The purpose of s. 20(5) is to assign to the creditor who is in lawful possession of the security subjects rights and obligations already vested in the proprietor.”

He continued: “The heritable creditor has no ownership of subjects which have been transferred. It has an interest, separate and distinct from ownership. The landlord’s interest as owner has not transferred to the appellant. The appellant has its interest registered in the Land Register as assignees of the standard security. The landlord’s interest has not transferred to the appellant. Mr Fever remains the heritable proprietor.”

Assessing the construction of the term “landlord” in the 2006 Act specifically, Sheriff Kelly said: “The inclusion within the definition of ‘landlord’ of a landlord’s successor in title does not assist here. The heritable creditor’s interest as security holder is separate and distinct from the registered proprietor. The appellant here is not a successor in title to the landlord.”

He went on to say: “The FTS elides the distinction between heritable creditor and heritable creditor in possession. That issue matters for the answer to the question as to whether the appellant is properly designed as landlord in this application and has an obligation to fulfil the repairing standard in relation to the subjects.”

The sheriff concluded: “The decision of the FTS, that the appellant is the landlord for the purposes of this application, amounts to an error of law. The landlord who is obliged to comply with the repairing obligation in terms of the 2006 Act is Mr Fever, the heritable proprietor who contracted with the respondents.”

Upholding the appeal, the sheriff therefore quashed the decision of the FTS and dismissed the application.

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