Enforcement of buy-to-let mortgages and collateral damage to tenants: habitability and eviction

By Malcolm Combe - Posted on 28 June 2024


Many residential properties in Scotland are used as security for loans, and many of those homes are let by the private owner to a residential tenant. According to Bank of England statistics, approximately 45% of those who privately rent in the UK live in a property which a lender is using as security for its loan to the owner. The legal device deployed for this arrangement will be a mortgage or, in Scots law terms, a standard security.

It will often be the case that the interests of a creditor with a security over a property and a residential tenant living there will not clash. Where there has been a default in relation to a secured loan, however, issues around enforcement and the implications for any occupier of the security property can arise.

In the cases of Pepper UK Ltd v Alvey and Pepper UK Ltd v Rendle, some of these issues came to a head. These cases both flowed from the same landlord defaulting on his “buy-to-let mortgage” (that being the commonly used terminology). One point related to the habitability of the property, and in particular who was obliged to meet the statutory repairing standard for privately let homes. A second matter was the eviction of the tenants from their home by the creditor (to allow a sale with vacant possession). The statutory regime for the prevailing residential lease in Scotland specifically allows for eviction of a tenant when a buy-to-let mortgage is enforced. That may be so, but it can be queried whether this regime was applied appropriately in this instance, and a further question arises about whether the legal framework is in any event appropriate.

In a recent article for the law journal the Juridical Review, I used these linked cases as the basis for a discussion of what the law ought to do to best balance the apparently competing interests of an enforcing heritable creditor and any occupiers. The article is entitled, “Collateral damage for residential tenants when a landlord defaults on a secured loan: the enforcement of heritable securities and the habitability of – and eviction from – a privately rented home”. Without meaning to patronise anyone, that title is an attempted wordplay around the security concept of “collateral” – i.e. the property that is offered in security for a loan – and those who can be caught in the crossfire when things come to a head. Naturally, those who are really interested in this topic are directed to the full article. This blog post seeks to capture some of the key points from that piece.

For completeness, it can be noted that in Scots terminology a “heritable security” means a security over land, and a “heritable creditor” means the person who holds such a security.

How can collateral damage arise?

The story that inspired this analysis began in December 2006, when someone bought a flat and then granted a standard security over it to a creditor. Through some financial industry wheeling and dealing, this standard security and the repayment right for the related debt was eventually transferred to another financial institution. For reasons not explained fully in tribunal proceedings (but apparently relating to non-payment of the secured debt), in 2021 a court order in favour of this creditor was obtained at Edinburgh Sheriff Court. This order allowed them to enter into possession of the flat (with a view to a subsequent sale of it). 

The tenants were introduced into this story a little before that court order. In September 2020, they were granted a private residential tenancy – usually referred to simply as a PRT – of the flat. PRTs are governed by the Private Housing (Tenancies) (Scotland) Act 2016. All residential lets entered into since December 2017 are PRTs (subject to a list of exceptions found in Schedule 1 of the 2016 Act). There is no indication that the tenants were problematic. Nevertheless, they were asked to leave the flat by the enforcing creditor, in accordance with the procedure set out in the 2016 Act.

As is apparent by the very fact that this matter reached a tribunal, the tenants – as they were entitled to do – did what they could to ensure the relevant legal processes were followed and exhausted. They also brought a tribunal action of their own in relation to the condition of the flat (incorporating a need to have relevant safety documentation for it). The thrust of the tenants’ argument was that the enforcing creditor now came to be identified as the landlord in terms of the Housing (Scotland) Act 2006. These two parts of the story can be better explained separately. With eviction representing the end point of a tenancy, it is perhaps sensible to consider that issue second.

Habitability and the buy-to-let sector: who is responsible for meeting the repairing standard?

Section 13 of the Housing (Scotland) Act 2006 narrates what is needed for a dwelling to meet the “repairing standard”. Section 14 imposes a duty on the “landlord” at the commencement of and during the tenancy. Where there is a failure to meet the repairing standard, a tenant can apply to the First-tier Tribunal (Housing and Property Chamber) (“FtT”) for a determination to this effect, and if the FtT agrees this is the case the tribunal can make a repairing standard enforcement order. Failure to comply with such an order without a reasonable excuse is a criminal offence, and can also lead to the imposition of a rent relief order (which can cap the rent a landlord can charge at 10% of the usual value).

Given the implications of this regime, it is understandable that a creditor – particularly one who has no particular expertise or experience in property management – may not wish to come within its ambit. In this dispute, the FtT initially held that repairing standard obligations did indeed fall on the secured creditor. That decision has now been overturned, principally on the basis that the creditor had not gone so far as to take possession of the property. It is submitted that the Upper Tribunal has reached the correct decision, notwithstanding the potential for some tenants to find themselves with a right that is of limited value (owing to the likely financial standing of the landlord it might be enforced against).

There are a couple of issues that need to be resolved here: who is the “landlord”; and (if the enforcing creditor is not already “the landlord”) can the landlord’s obligations nevertheless flow to the creditor?

Section 194 of the 2006 Act defines “landlord” for the purposes of that statute as “any person who lets a house under a tenancy, and includes the landlord's successors in title”. This is the relevant definition in terms of who is under the statutory duty in section 14 of the 2006 Act.

To take an uncontroversial position first, a creditor with an unenforced standard security is not the owner of the encumbered property and as such is not letting a house under a tenancy. The owner is the person with the registered title to the land. Meanwhile, a secured creditor who has gone so far in the enforcement process as to “foreclose” the property and has completed all the relevant formalities is, in fact, the owner, and would therefore come within the 2006 Act as a successor in title.

What about a secured creditor who is somewhere between those poles? The first instance decision made much of various statutory provisions which were thought to support the proposition that a heritable creditor was equivalent to the landlord (drawing on: the Title Conditions (Scotland) Act 2003; the Housing (Scotland) Act 1988; and the Private Housing (Tenancies) (Scotland) Act 2016). These variously allow a creditor to act as if they are the owner in certain contexts or have a wider definition of “landlord” than is found in the 2006 Act. The Upper Tribunal cut through much of this, noting that “landlord” was defined specifically in the 2006 Act and that the meaning there is expressly constrained to that Act. The framing of that term so as to include a landlord’s successor in title was also not relevant here, as the creditor had not taken title from the landlord. Finally, in statutory interpretation terms, the clear wording of the 2006 Act meant there was no need to look at other statutes.

As to whether duties might have flowed to the enforcing creditor by other means, this could have happened in terms of the legislation that governs standard securities in Scotland. In this particular situation though, the creditor was saved from this consequence by not entering into possession of the flat.

A creditor being in lawful possession of the security property can have some consequences under the Conveyancing and Feudal Reform (Scotland) Act 1970. Amongst other things, these allow an enforcing creditor to enter into possession of the security property and enjoy the trappings of ownership (such as receiving rents or, if there is no sitting tenant, letting the property out).

From the framing of the 1970 Act, it seems clear that the enforcing creditor would have needed to take active steps towards possession to have any rights and obligations transferred from the proprietor (as landlord) to them. This was the view of the Upper Tribunal. This approach is consonant with the case law in other circumstances, such as Ascot Inns Ltd (in receivership) v Braidwood Estates Ltd 1995 SCLR 390, David Watson Property Management v Woolwich Equitable Building Society 1990 SLT 764 and Northern Rock Building Society v Wood 1990 SCLR 745.

Overall, the Upper Tribunal reached the correct decision. The practical implications of the decision could, however, be problematic in certain circumstances. It is not too much of a logical leap to suppose that landlords in default under a secured loan may also fall short in terms of their important repairing standard obligations, especially if they are facing wider financial difficulty and are unable to fund any necessary work or safety checks.

Whilst this case does at least provide clarity that landlords remain the only legitimate targets for any affected tenants, and this remains the case even where a creditor has taken certain steps towards enforcing a security right, the practical impact of this decision could be to deny tenants a viable target at the end of that process. Granted, a tribunal can award a repairing standard enforcement order and that could in turn lead to a rent deduction in the future and/or criminal charges being brought against the landlord, but winning a tribunal case against a landlord in financial distress might not lead to a particular property being rendered safe. All of this could undermine the effectiveness of the repairing standard in other similar (albeit narrow) circumstances involving an enforcing creditor.

Away from such a scenario though, it might be that the particular effectiveness of the repairing standard regime in relation to a landlord who does nothing is not so much in relation to a particular let property. Rather, overarching effectiveness might be achieved in terms of information about a landlord not meeting the repairing standard being shared with the relevant local authority, in the hope that the local authority can then act against that landlord should they try to register to let other properties in the future.

Finally, and whilst this may be scant comfort to tenants who find themselves in this situation, it can be surmised that the time window in which a home is variously a) tenanted, b) not meeting the repairing standard and c) subject to enforcement by a heritable creditor is not likely to be a protracted one. This is because any organised and self-interested secured creditor will likely pursue vacant possession as quickly as possible.

Eviction and the buy-to-let sector: a reasonable balance?

The second issue for the tenants was whether they could remain in their home notwithstanding the enforcement action against the landlord. Another FtT decision allowed for them to be evicted, as the secured creditor was able to establish an eviction ground under the Private Housing (Tenancies) (Scotland) Act 2016 by moving towards the sale of the property with vacant possession, and the tribunal determined it was reasonable to allow the eviction to proceed.

In the second of their three Discussion Papers on heritable securities, the Scottish Law Commission noted that, “The relationship between the security holder’s remedy of ejection and eviction of private residential tenants has been the subject of some debate under the current law.” Without exploring this topic in any similar detail here, it is generally accepted that a creditor who has the court’s approval to recover possession from an owner/landlord must also have a separate authorisation to recover possession from any residential tenant occupier.

As noted above, the 2016 Act provides a specific eviction ground which applies when the lender intends to sell the let property. This ground – like the other eviction grounds applicable to PRTs – is found in Schedule 3 of the 2016 Act. As first enacted, Schedule 3 provided a mixture of mandatory and discretionary grounds. Every ground requires to be established before the FtT, but mandatory grounds of eviction would simply be granted by the FtT if found to be applicable (on the balance of probabilities). The “Property to be sold by lender” ground was initially one of the mandatory grounds.

The lender sale ground – like all the other mandatory grounds – was amended by the Coronavirus (Recovery and Reform) (Scotland) Act 2022. The 2022 Act itself followed on from a temporary emergency regime that made it less simple to disrupt residential occupation during the pandemic, introduced by the Coronavirus (Scotland) Act 2020, also in a way that rendered the originally mandatory grounds discretionary. All of the grounds are now subject to a “reasonableness” test (that is to say, it is within the FtT’s discretion as to whether to grant the eviction).

Returning to the specific situation under discussion, this creditor had a court decree allowing them to sell the flat. With reasonableness now being a factor for this eviction ground, some novel issues are introduced, as is the potential for conflicting priorities.

When the lender sale ground of the 2016 Act transformed from mandatory to discretionary, it does not appear that the potential for tension between a secured creditor’s duties under section the 1970 Act were fully considered. One duty is to advertise the sale and to take all reasonable steps to ensure that best price possible of the property, plus there may be a need to consider the interests of any other secured creditors. It is generally accepted that residential property attracts a higher price when it is sold with vacant possession rather than with a sitting tenant. Overlooking this issue was unfortunate and it is hoped that any future reform exercise – whether in relation to heritable securities or private renting – could revisit it to at least allow for the various perspectives to be weighed up.

Be that as it may, the law has now changed, and when the secured creditor here sought to evict the tenants at East Pilton Farm Crescent this was subject to the “reasonableness” test. Notwithstanding the aforesaid difficulties of squaring the “best price” duty of the enforcing creditor with the situation of the tenants, there are aspects of the tribunal’s decision that can be quibbled with.

A first quibble relates to the tribunal’s observation that the creditor “requires” vacant possession, which could perhaps have been replaced with “desires”; this is because it is competent to sell with a sitting tenant. A more important quibble is the tribunal’s observation that “when both the mortgage and the tenancy commenced, the [creditor] had had an absolute right to terminate [the tenancy] on the proper statutory notice”. Whilst this may be so, the law changed, and it did so in a way that did not carve out existing tenancies. To draw an analogy from the same sector, when the Housing (Scotland) Act 2006 introduced its repairing standard to tenancies already in existence, existing landlords were not able to dodge the new regime. Finally, the observation is not technically correct in the context of this tenancy. According to the various tribunal proceedings this tenancy commenced in either September or October 2020, when the Coronavirus (Scotland) Act 2020 was in force and the eviction ground had been rendered discretionary. It is not clear whether the creditor consented to the grant of this particular tenancy but, if they did, they should have been aware of the applicable law at the time.

The FtT also considered whether the creditor could be compelled to retain the tenants, expressing the view that there was neither an obligation on them to do so nor a right for this to be insisted upon, before concluding that the creditor was bound to sell. Again, there are some issues with the FtT’s approach here. The tenants had an extant PRT. A PRT can only be brought to an end in accordance with Part 5 of the 2016 Act. The FtT was in fact being asked to bring this PRT to an end, and it is strange to frame the effect of not granting an order as compulsion to retain tenants. Further, the creditor was not bound to sell; rather it had chosen to sell and, having done so, they were under a duty to maximise the price. It was open to the FtT to refuse to grant the eviction because it was not reasonable notwithstanding a statutory duty in the enforcement process that the heritable creditor had opted for.

As to whether it was reasonable to allow the eviction to proceed, some broad consideration of this was made. Arguably, this did not suitably interrogate the individual circumstances of the tenants, as is required in such cases (drawing on case law since Barclay v Hannah 1947 S.C. 245). In particular, the FtT ought to have considered the effects of making and not making the order on both parties.

To mitigate the acknowledged difficulties of the tenants in finding accommodation for their particular needs at an affordable price, the FtT had regard to wider considerations such as the Cost of Living (Tenant Protection) (Scotland) Act 2022 (which operated to delay their eviction – and indeed any eviction under the lender sale ground or certain other eviction grounds – by six months) and the existence of Scottish homelessness legislation. This can be criticised for not being sufficiently individualised and, perhaps more importantly, it did not engage with how Scottish homelessness legislation (in terms of Part 2 of the Housing (Scotland) Act 1987) might play out for this family unit. The recent Upper Tribunal case of Boyle v Ford [2023] UT 4 touches on a local authority’s statutory duties to rehouse those who are evicted and that this was a factor which the FtT is entitled to take into account in reaching a decision on reasonableness, but that they should not ascribe “sole or undue weight on this factor”. Returning to this matter, the relevant local authority – the City of Edinburgh Council – would have been told about the eviction, but it can be queried as to how effective their response might be if they were called upon given current pressures on homelessness provision in Edinburgh (where there were 420 documented instances of households in that local authority not being offered temporary accommodation in the most recent annual statistics).

It is acknowledged that such considerations may go beyond the gift of a secured lender. That may be so, but such considerations can also be relevant in relatively analogous situations of enforcing a standard security against a residential debtor since the implementation of the Home Owner and Debtor Protection (Scotland) Act 2010. It is also acknowledged that there are important issues at play here, including the effectiveness and indeed attractiveness of the secured lending market when it comes to operating in the Scottish buy-to-let mortgage sector. Finally, it is acknowledged that the FtT was only able to play with the hand it was dealt, where it was required to balance competing interests in a legal context that might have been better designed. That does not change the fact that the FtT could and indeed should have engaged more deeply with their discretion in this case. It also helps us identify matters that should be considered in any future reform.


These linked tribunal cases put some difficult issues into sharp focus. Secured lenders do not expect to act as property managers or housing associations. Tenants do not expect to live in unsafe properties, and will hope not to be unreasonably evicted from their homes when they are in full compliance with the terms of their tenancy.

There are two broad issues that might be teased out in conclusion. On the issue of the repairing standard, it is accepted that the Upper Tribunal has made the right decision in terms of the law as it stands. That being the case, this scenario gives food for thought for the future statutory reform on which the Scottish Law Commission is currently working, and circumstances where an enforcing heritable creditor becomes liable for a let property could be part of that. This might be appropriate where the property does not meet the repairing standard, the landlord is unable (or unwilling) to act, and the enforcing creditor has allowed that situation to drag on.

On evictions, the lender sale ground should be recognised as unique amongst the eviction grounds, and ought to be revisited to ensure the opposing interests of secured creditors and residential occupiers are appropriately balanced. The exact nature of that balance will require input from various stakeholders, but it might even be specifically designed to be sympathetic to tenants who – as was apparently the situation in this scenario – are in a position to make a reasonable offer to purchase their home. Any future regime may also actively involve human rights law considerations around the right to housing, which the planned Human Rights Bill is due to incorporate into Scots law (through the incorporation of the International Covenant on Economic, Social and Cultural Rights), and could in turn be addressed in any new Act of the Scottish Parliament on heritable securities. In the meantime though, the existing regime should be applied carefully, and a suitable application of “reasonableness” in eviction proceedings must be part of that.

The citation of the full article in the Juridical Review is: Malcolm M Combe, "Collateral damage for residential tenants when a landlord defaults on a secured loan: the enforcement of heritable securities and the habitability of – and eviction from – a privately rented home" 2024 Jur. Rev. 197. It is available on Westlaw, and an open access version will be available via Strathclyde's institutional repository after an embargo of one year.