The Mortgage Repossessions (Protection of Tenants) Act 2010 is due to come into force in England and Wales shortly, offering protection to tenants of rental properties whose landlord has both defaulted on the mortgage and failed to notify the lender that the property was being let.

Currently, as such tenancies are unauthorised; the tenants have no rights against the lender, often having to vacate the property at short notice.

The Department of Communities and Local Government recently estimated that as many as 330,000 households in England and Wales were at risk of eviction at short notice if their home was repossessed due to unauthorised tenancy agreements. 

The new Act will allow courts to postpone a possession order by up to two months so that an unauthorised tenant can look for other accommodation. This is welcome clarification as currently cases are assessed on a case by case basis making it time intensive and costly for lenders, causing delays in the possession process. 

In Scotland, unfortunately, there is currently no equivalent legislation.  Most tenancies of privately-owned residential property in Scotland are short assured tenancies under the Housing (Scotland) Act 1988.  Ground 2 of the Act provides for the eviction of tenants and the court has no discretion. However, for an eviction on Ground 2 to go ahead, the tenant has to have been notified prior to the commencement of the tenancy that there is a mortgage over the property. The tenancy agreement must also contain a clause stating that the tenancy might be ended by the lender if the landlord defaults in repaying the loan.

Where the tenancy has not been authorised by the lender and notice was not given, the lender would have to go to court to apply to have the requirement for notice waived, and if the clause has not been included,  the lender has to find another basis on which to terminate the tenancy – more often than not a lengthy process. We are currently acting for lenders who are having to take the unusual course of raising a court action for reduction of the tenancy in order to terminate it.  In some cases, lenders have little choice but to enter into possession of the property, in effect becoming the landlord, in order to move the process of eviction and repossession along.

No doubt many eyes will be watching the new Mortgage Repossessions (Protection of Tenants) Act 2010 with the hope that legislation clarifying the law relating to unauthorised tenancies will also be introduced in Scotland.