KNOWLEDGE

Whose property is it anyway? Legal implications of repossession of heritable property by heritable creditors

Morton Fraser Senior Associate Alastair Johnston
Author
Alastair Johnston
Senior Associate & Solicitor Advocate
PUBLISHED:
01 February 2024
Audience:
Real Estate
category:
Blog

With the cost-of-living crisis showing little sign of improvement, a sluggish property market and financial pressure on businesses of various sizes throughout the UK, it is of little wonder that repossession of both commercial and residential property by secured lenders is an all too common occurrence.

An interesting question arises as to what precisely a heritable creditor's legal standing is when exercising its power of repossession and sale of heritable property in Scotland under section 25 of the Conveyancing and Feudal Reform (Scotland) Act 1970. Two relatively recent decisions have explored this question albeit from different perspectives.

Logan v Irons:- Can a heritable creditor grant a servitude over property when exercising its right to sell?

The first case was that of Logan v Irons [2023] SAC (Civ) 9 heard in the Sheriff Appeal Court and amongst the legal questions being grappled with was whether a heritable creditor, when exercising a right to sell under a standard security, had the right or title to grant a servitude over the subjects to a purchaser. In particular, does the fact that they are only a heritable or "secured" creditor mean they have any lesser or restricted right to convey a property as they see fit, given that they are conveying it via a statutory power of sale granted to them in the standard security, rather than in their own right? Furthermore, if when they were granted the security and no servitude existed at that time, could they subsequently grant such a right if it was later created by implication?

The Court in that case was quite content to consider that a heritable creditor did indeed "step into the shoes" of the original owner as at the point of enforcement of its rights. In reaching this decision, the Court considered that as the standard security granted a right to convey the property together with its "parts and pertinents", a subsequent implied servitude could fall within such "parts and pertinents" and therefore they were entitled to grant such a servitude. The Court also considered that the statutory obligation to take all reasonable steps to ensure that the subjects are sold at the best price which could reasonably be obtained, empowered the creditor, under the right circumstances, to grant an implied right of servitude.

Pepper UK Ltd v Jade Alvey & Marc Rendle:- Does a heritable creditor exercising its right to recover possession of a property from a tenant become a landlord?

The second case was that of Pepper UK Ltd v Jade Alvey & Marc Rendle, an appeal to the Upper Tribunal of the Housing and Property Chamber, a decision which was published earlier this month. In this case, the Upper Tribunal concluded that a heritable creditor holding an unenforced decree for possession does not "step into the shoes" of the landlord for purposes of the repairing obligation. This case involved residential tenants who raised an application in the First Tier Tribunal to seek an order that their landlord had failed to comply with the relevant repairing standard. So far none of this is particularly unusual. Where the case became more interesting was that the "landlord" referred to in that application was in fact the heritable creditor of the original landlord.

At the time of the application the title to the property remained with the original landlord who had granted a standard security which, following a series of assignations, was held in favour of Pepper UK Ltd. Pepper UK Ltd had obtained decree against the original landlord entitling it to enter into possession of the subjects. Pepper UK Ltd duly served notices to leave upon the tenants and commenced proceedings to have them removed. The First Tier Tribunal, following a hearing, decided that Pepper UK Ltd was indeed the landlord for the purposes of compliance with the repairing standard.

In coming to this decision, the Tribunal considered the relevant statutory provisions governing a heritable creditor's powers in such situations. In particular, it was noted that the legislation provides for deemed assignation to a creditor in lawful possession of the rights and obligations of the heritable proprietor relating to leases. The Tribunal concluded that this included those obligations relating to the repairing standard. This decision was appealed.

The main thrust of Pepper UK Ltd's argument on appeal was that it was not in fact a heritable creditor in possession as notwithstanding that it had obtained an order for repossession, it had not, as a matter of fact, taken possession yet. Until a heritable creditor took possession there could only be one landlord, the heritable proprietor. Having considered the various statutory authorities the Upper Tribunal agreed with Pepper UK Ltd's arguments and decided that, not having taken possession of the property, the heritable creditor was not a landlord for the purposes of the application and dismissed the application accordingly.

The standing of a heritable creditor, in respect of the property it is enforcing its rights over, is therefore something of a fluid state and not a straightforward question being very much dependent on the facts. As can be seen from the cases above much depends on the rights or obligations in question and the stage that the heritable creditor has reached in securing possession and selling the property.

Disclaimer

The content of this webpage is for information only and is not intended to be construed as legal advice and should not be treated as a substitute for specific advice. Morton Fraser LLP accepts no responsibility for the content of any third party website to which this webpage refers.  Morton Fraser LLP is authorised and regulated by the Financial Conduct Authority.