PRTs, sham sales, and WTOs: Reynolds v Henry

By Malcolm Combe - Posted on 19 December 2024

Please forgive the acronym soup in the heading of this blog post, which was deployed to keep the heading of a manageable length.

To explain, a PRT is a private residential tenancy. The PRT is the letting vehicle that is available for landlords and tenants in the Scottish private rented sector.

A WTO in this context has nothing to do with the World Trade Organization. Rather, it stands for a “wrongful-termination order”. As we shall see, a WTO is a penalty that can come into play when some sort of landlord trickery has led to a PRT being brought to an end and the tenant moving out of their home.

As we shall also see, one such trick might be for the landlord to pretend they are going to sell the let property, a practice that I will call a “sham sale”. A genuine sale by a landlord is a valid ground for eviction of the tenant. This eviction ground reflects the economic reality that a home can attract a higher price with vacant possession rather than a sitting tenant. Where it later transpires a sale in these circumstances was in fact a sham, a tenant can apply to the relevant tribunal for a WTO.  

All of this was relevant to a recent case that made it to the Upper Tribunal. In Reynolds v Henry, the Upper Tribunal considered exactly what the statutory wording of the relevant eviction ground actually meant, and also the circumstances in which a WTO could be appropriate. A case note about this was recently published in the News section of the Scots Law Times. This blog post distils key points of interest from that case note.

PRT evictions in Scotland in 2024

The relationship between a landlord and a tenant is not normally one that the landlord can unilaterally bring to an end with any ease. In Scots law, this is particularly the case for a private landlord who has let a dwelling to a private individual to occupy as their home.

There are a finite number of eviction grounds that allow a landlord to remove a private residential tenant from the let property. For PRTs, these are found in a schedule to the Private Housing (Tenancies) (Scotland) Act 2016. Where a landlord feels a ground is in play, they must serve a suitable notice to leave on the tenant, highlighting the relevant ground in that notice.

Next, the eviction ground will need to be established before a tribunal, known as the First-tier Tribunal (Housing and Property Chamber); unless, that is, the tenant responds to the landlord’s notice to leave by moving out. A tenant might do this because they think (or have been led to believe) that the landlord has a compelling argument that the tribunal would accept.

Some of the eviction grounds relate to a change in the landlord’s circumstances. For several years now, Scots law has also required a tribunal to be satisfied that it is reasonable in all the circumstances to grant a landlord possession before making an order, although naturally this will only be tested if and when an eviction case reaches that stage.

PRTs are accordingly tenacious creatures. Indeed, the tenacity of PRTs is highlighted in the Upper Tribunal’s decision, before an explanation of the WTO rules that “are intended to provide some measure of protection for tenants against… sharp practices, and a deterrent to those landlords minded to employ them”. Those rules will be discussed now.

WTOs, and the situation in Reynolds v Henry

The case under discussion saw the Upper Tribunal rule on the applicability of a WTO, on appeal from an initial decision of the First-tier Tribunal (Housing and Property Chamber) to the effect that a WTO should not be awarded to the former tenant.

A WTO is available – on the application of a former tenant – when the former landlord has somehow contrived a situation so as to make it appear that a valid ground to terminate a PRT exists that either (a) encouraged a tenant to leave their home or (b) convinced a tribunal to evict someone from their home. If a tribunal then decides that – in fact and in law – there was no need for the tenant to surrender possession, it can order a payment to be made from the former landlord to the former tenant. This order is a penalty sum not exceeding six times the monthly rent that had been payable (the exact figure being at the tribunal’s discretion). The WTO is a purely financial penalty and there is nothing further that the tribunal can command in this context (meaning that a WTO cannot force the reinstatement of the former tenant to their former home).

The potential application and effect of a wrongful-termination orders was covered in an earlier Strathclyde Law Blog post, and anyone wishing a fuller explanation of the regime can look at a related article in the Juridical Review.

The Upper Tribunal has now provided the most authoritative pronouncement on the WTO to date. In so doing, they also set out a four-stage test for future cases regarding whether a wrongful-termination order should be granted.

That four-stage test would itself be worthy of comment, but the case also offers valuable analysis of the proper interpretation of an important eviction ground. In this situation, the applicant (that is to say, the former tenant) vacated the let property owing to the landlords’ apparent plan to sell it. The property was indeed advertised for sale and some offers to purchase were received, but no offers were accepted (and the surrounding facts suggested that there was never any intention to accept an offer). The property was ultimately re-let to a new tenant. At first instance, the tribunal was nevertheless of the view that this process had engaged the eviction ground “that the landlord intends to sell the property”, and as such declined to make any award to the applicant. The Upper Tribunal disagreed with this interpretation, holding that apparent efforts towards sale that were in fact a sham, and this would not act as a valid trigger for eviction trigger. All of this will be considered in this blog post.

A four-stage test for whether a WTO can be granted

In this case, the Upper Tribunal has taken the opportunity to explain what must be established before a former tenant can succeed in an application for a WTO. This is done from the perspective of a tenant who responded to a notice to leave rather than the perspective of a tenant who was evicted by legal process, but the first three stages of the test can also be applied and adapted to a situation where there has been an eviction.

The four-stage test, set out at paragraph 13 of the judgment, can be summarised as requiring: a representation by the landlord; which is objectively misleading; which actually misleads the tenant; and which causes the tenant to leave their home. Each of these is a factual issue that a tribunal will have to establish on the balance of probabilities. An attempt to explain and supplement the four aspects of the test follows.

First, the landlord must have made some form of representation to the tenant, by commission or omission. The legislative scheme points towards the landlord making at least one positive representation to the tenant that there is a ground for eviction in a formal notice to leave, but any other written or oral representations made by the landlord to the tenant can also be founded upon to bolster that baseline.

Second, the representation must have been objectively misleading. When considering a notice to leave, a notice would be misleading if it states that the landlord has a ground for eviction under schedule 3 of the 2016 Act when in fact no such ground exists.

Third, the tenant must have actually been misled by the landlord’s representation. This means that any tenant who knows a landlord is falsely claiming a ground exists cannot later claim to be misled and any application by such a tenant cannot succeed. This may at first glance appear to cut off such a tenant from the protections of the WTO regime, but any perception of unfairness to them is mitigated as a tenant furnished with such information who genuinely wishes to stay in their home in the face of a notice to leave that they know is duplicitous can hold their ground and remain there unless and until an eviction order is obtained. In the unlikely event that a landlord nevertheless successfully seeks eviction based on such a contrived notice to leave, a WTO application could be made by an affected tenant at that stage (and the issue to prove would be the state of the tribunal’s knowledge rather than the tenant’s knowledge).

Fourth, the representation must actually have misled the tenant into ceasing to occupy the property. Again, at first blush this may seem to withdraw protection from a tenant, but this can be rationalised by considering the situation of a tenant who autonomously decides to leave their home after they receive a notice to leave. This is already a valid means to bring a PRT to an end. By analogy, it would be strange to provide a windfall to a tenant who pretends this was not the case. Approaching this from a different perspective may offer a counter-argument though – should a WTO be about penalising unscrupulous landlords in all circumstances? By a different analogy – albeit an admittedly less exact analogy – the deposit protection regime can operate to penalise landlords who have not fully complied with the scheme even where a tenant is not out of pocket. Be that as it may, the framing adopted by the Upper Tribunal sits comfortably with the wording of the statute, and following this decision a WTO will only be available when a representation has been at least a significant or material cause of the tenant moving out.

Returning to the first stage of this four-stage test and the need for a representation, in our earlier co-authored article Peter Robson and I argued that a strict interpretation of the 2016 Act’s requirement for a notice to leave might leave some tenants unable to unlock the WTO scheme. This would be the case when a landlord was cute enough to not go so far as to serve a notice to leave but has made it plain to the tenant by some other means that they think they have an eviction ground. That article was referred to in this judgment, and we are grateful that it was, but the Upper Tribunal did not take the opportunity to adopt our reasoning on that point.

Since this Upper Tribunal ruling, the First-tier Tribunal (Housing and Property Chamber) (which I will now abbreviate to “FtT”) has considered this point directly in the case of McColgan v Olivarius FTS/HPC/PR/24/0462. In that case, the former tenant had moved out after he received a message from his landlord on WhatsApp in the following terms:

Hey pal I left a message but wanted you to know asap - we have decided to put the flat on the market – a difficult decision but unfortunately a necessary one. Lease ends start of April but happy to hold off til your term ends if that helps you out? Sorry again chat this evening if youre free?

No formal notice to leave was ever issued subsequent to that exchange. The tenant left a little over a month after that message (with the exact date of departure being agreed in a further exchange of messages). The (now former) tenant then found out his former home had been re-let rather than sold.

For various reasons, the tribunal declined to make an order (highlighting a desire to ensure the integrity of the legislative scheme as a whole, and an adherence to the plain meaning of the 2016 Act). Accordingly, unless this issue somehow makes it to the Upper Tribunal or indeed the Court of Session for reconsideration, it appears that WTOs will not be available to any tenants who move out of their home following representations by the landlord that do not incorporate a valid notice to leave. In my view, that is regrettable, but I acknowledge the careful consideration of the legal member in the recent FtT decision.

The proper interpretation of landlord intention to sell the let property

This four-stage test provides scaffolding for future WTO decisions, but what of the case at hand? And what of the other key legal point, namely the interpretation of the eviction ground that was deployed? That is probably best explained with a fuller consideration of the particular facts of this scenario.

This story begins in 2018, when Ms Reynolds (who I will refer to as “the Applicant”) entered into a PRT with Mr and Mrs Henry (“the Owners”) for their property in Edinburgh (“the Property”). In August 2021, a notice to leave was served by the Owners on the Tenant, on the basis of their intended sale of the Property (being Ground 1 in schedule 3 of the 2016 Act).

The Property was duly exposed for sale and the Owners incurred expense in connection with this, with the published decision of the FtT (available on the Housing and Property Chamber’s website under reference FTS/HPC/PR/23/1170) indicating some £1664 was spent on instructing a solicitor, obtaining a home report for the Property, and listing it on an online platform. The Applicant moved out of the Property in March 2022. Viewings of the Property took place and offers to purchase it were received, but none of these were accepted. Instead, the Owners withdrew the Property from the market and moved into it themselves, staying there while they carried out works to their principal home. The Property was let to a new tenant, at a higher rent, in August 2022. In April 2023, the Applicant applied to the FtT for a WTO.

The FtT decision indicates that there may have been some other eviction grounds that were almost in play. These were not however deployed, so the appropriateness of making a WTO fell to be measured against the single ground that was actually used (the aforementioned Ground 1: “Landlord intends to sell”).

The operative wording of that Ground provides that the FtT may find it applies:

if the landlord (a) is entitled to sell the let property, (b) intends to sell it for market value, or at least put it up for sale, within 3 months of the tenant ceasing to occupy it, and (c) the Tribunal is satisfied that it is reasonable to issue an eviction order on account of those facts.

In terms of what needed to be considered in the context of this WTO application, bullet (c) did not come into play, and bullet (a) was a simple finding in fact for the tribunal. The remaining bullet (b), and the interpretation of it, was decisive in terms of whether the Owners had an eviction ground; if they did not, a WTO could be made.

The FtT refused the application in November 2023. Crucial to their ruling was the “or” in bullet (b) and the wording after it. This “or” allowed the tribunal to avoid the issue of the intention or otherwise of the Owners to sell the Property for market value, and focus only on the exposure of the Property for sale. The tribunal was at least moved to note they did not “find this position to be an entirely satisfactory one for a tenant” but it nevertheless considered this to be the correct interpretation of this limb. That was not all that the tribunal had to say on the situation before it though: it continued that “it was not satisfied, on the basis of the evidence before it, that the Respondents had any intention of going through with a sale of the Property”.

With that backdrop, it is perhaps unsurprising that permission to appeal to the Upper Tribunal was sought and granted. The appeal was successful. To explain why the Upper Tribunal disagreed with the FtT’s approach, it is best to reproduce paragraph 16 of the Upper Tribunal’s judgment here (retaining the emphasis in the original).

Critically…, whether a landlord has a ground for eviction under paragraph 1 of schedule 3 depends on his intention, per paragraph 1(2)(b), to either sell the property for market value, or at least put it up for sale. But on either limb of this sub-paragraph, the intention to sell must be genuine. If a landlord puts a property on the market, but has no genuine intention of accepting any offers that may be made for it, he is neither intending to sell the property for market value, nor is he putting it up “for sale”. Rather, if he is purporting or pretending to market the property for sale simply in order to remove an unwanted tenant, then in reality he is putting it up for a purpose other than “for sale”. The marketing of the property and the inviting of offers to purchase in such circumstances is a sham, because there is no real intention to accept any offers which may be made, nor to conclude a contract of sale. It therefore does not constitute ‘putting the property up for sale’ for the purpose of ground 1 of schedule 3.

On that basis, it was held that the FtT had erred in law, and that its conclusion that a landlord can fulfil the requirements of Ground 1 even if in fact they have no intention of selling it was incorrect. To not require a genuine intention to sell the let property, and to not construe the expression “put it up for sale” in a similar way, would undermine the protection that is supposed to be provided to tenants. The Upper Tribunal did acknowledge that there can be tricky to gauge situations whereby a landlord genuinely intends to sell the property or markets it with a sale in mind and then their circumstances change (with reference to the explanatory notes and the aforementioned Juridical Review article by Combe and Robson). This would, however, be something to be determined by a tribunal and suitable findings in fact would have to made to that effect.

Was a WTO appropriate in this case?

Returning to what the former tenant in this case actually sought, namely a financial penalty payment from the landlord, the Upper Tribunal then measured the situation as best it could against its newly expressed four-stage test for a WTO. On this, there was nothing before it to allow for a definitive ruling on whether the Applicant was in fact misled by the terms of the Owners’ notice to leave, and if so whether it was a material or significant cause of her leaving her home. The FtT had made no express findings on such matters, which was of course understandable given its (now overruled) decision that the eviction ground had in fact been engaged. From the output of the FtT though, there were indications that other factors beyond simply being misled by the notice to leave may have caused the Applicant’s departure from her home. These included the apparently acrimonious nature of the relationship between the Applicant and the Owners, plus the fact the Applicant was actually legally qualified.

In terms of its own disposal of the appeal, the Upper Tribunal set aside the FtT’s initial refusal to make a WTO, but also noted that further fact finding would be required before a final decision could be made. The Upper Tribunal accordingly remitted the case for a full re-hearing before a freshly constituted tribunal, who would then have the benefit of knowing the correct WTO test to apply and how best to approach its own findings and conclusions. As things stand, there is no published judgment for this re-hearing uploaded to the relevant area of the Housing and Property Chamber website, but the Forthcoming Tribunal Hearings section of that website indicates a Case Management Discussion is taking place in early January. WTO watchers will be keeping an eye out for the result of that, or awaiting news of any extrajudicial settlement.*

Conclusion

The very existence of wrongful-termination orders as an effective remedy can operate as a tool to keep those who let residential property to others in line, and where landlords fall out of line they can be held to account. On that basis, it is important that the legislative framework is both understandable and not easily worked around. Reynolds v Henry represents an important case accordingly, by shutting off a potential workaround that could have offered landlords a way of avoiding the 2016 Act’s protections simply by exposing the let property for sale. It is also noteworthy for its provision of a test for the determination of future WTO applications.

Since this Upper Tribunal case, the FtT has considered WTOs on a number of occasions (over and above the McColgan v Olivarius dispute). In one case, Carey v Carroll FTS/HPC/PR/24/2296, a tribunal demonstrated its willingness to award the maximum possible penalty against a “quite brazen and arrogant” former landlord who had caused her former tenant to suffer “a grave detriment”; this particular award amounted to £3,900 (six times the former monthly rent of £650). In another, Haynes v Phelan FTS/HPC/PR/24/2288, a tribunal showed consideration of a landlord whose plans had genuinely toed and froed after they recovered possession of the let property, in part because a financial penalty under the landlord’s mortgage product would have crystallised on a sale and this had not been known to the landlord, meaning no award was made. These cases show WTOs remain a relevant part of a legislative scheme that properly penalises wrongdoing landlords, whilst also being flexible enough to avoid punishing landlords who have not contrived a situation for their own benefit.

The new Upper Tribunal case helps to clarify exactly when a WTO can be made. Hopefully this blog post highlights the importance of that case whilst offering some useful commentary on it.

*This blog post was updated on 20 December 2024 to capture the details of the forthcoming Case Management Discussion for the remitted case. Thanks to Jim Bauld for flagging this.

The article "Sham sales of privately rented homes and wrongful-termination orders: Reynolds v Henry" can be found at 2024 SLT (News) 267.