A recent judgement in Haddington Sheriff Court, means that the way in which lenders can take possession of abandoned properties in Scotland may again be under consideration.
Accord Mortgages Ltd v Edwards
In the case of Accord Mortgages Ltd v Edwards Sheriff Braid found that the lenders were entitled to proceed by way of an action of declarator rather than raising a standard possession action under the 1970 Act.
Facts of the Case
This case related to a deceased debtor whose estate was insolvent. Section 20(1) & (2) of the 1970 Act describes what remedies the creditor can exercise in the event of the debtor’s failure to comply with the requirements of the calling up notice. The property was unoccupied, and in interpreting the legislation Sheriff Braid found that in those circumstances section 20 (2A) of the 1970 Act should not apply. Section 20 (2A) states:
“Where the standard security is over land or a real right in land used to any extent for residential purposes, the creditor is entitled to exercise the rights specified in standard condition 10(2) and (3) (and mentioned in subsections (1) and (2) above) only—
(a) where the conditions in section 23A of this Act are satisfied [voluntary surrender)
(b) with the warrant of the court, granted on an application under section 24 of this Act (standard summary application)
It was submitted that because the property was unoccupied it was therefore not “used to any extent for residential purposes” and it would be impossible - since the debtor had passed away and no one was using the house for residential purposes-to comply with the pre-action requirements.
Whilst at first glance it may appear that as a result of this decision obtaining possession of an abandoned or unoccupied property could be quicker and easier there are concerns associated with this view.
Sheriff Baird highlighted that difficulties could arise “if it emerges that the subjects are currently being used for residential purposes.” The status of a property may change between non-residential and residential use at any time and a lender may not necessarily be aware of this. The advantage of treating such property as non-residential is that they can be dealt quickly and with less expense incurred. Yet continuing down the normal route and complying with the pre-action requirements would undoubtedly have benefits. It would afford the recipients of the pre-action documentation-whether that is an Executor, Personal Representative or a Trustee - the opportunity to remedy the default or make proposals to the lender before the property was repossessed. In this cautious conveyancer climate, it would also reduce the likelihood of a prospective purchaser taking issue with a decree that was based on a non residential property which is likely to be purchased for residential use, which could delay, or even cause a sale to fall through.
Given the above and the risk that decree may not be granted at all should a Sheriff not accept that the property is no longer residential, it is our recommendation that the lender to continues to be pre-action compliant to ensure no difficulties are met when obtaining a court order. This will further highlight the reasonableness of lenders.