Status of tenants

In practical terms, tenants most likely to be affected by the information on this page are those whose landlords have 'buy-to-let' mortgages. However, sometimes landlords will have a mortgage first and decide to rent out their property at a later date.

For detailed information on different types of tenancies, please see the section on security of tenure.

For more information on the legal effect of mortgages on tenancies see ‘The Enforcement of Heritable Securities’. [1]

If the landlord does not live in the accommodation and has granted a tenancy after the 1st December 2017 (whether or not the tenancy is in writing) it is likely that the tenancy is a private residential tenancy.

A private residential tenancy which has been granted without the lender's consent could amount to a default on the mortgage of the landlord. [2] A lender may also apply to repossess if the landlord falls into mortgage arrears.

Where a lender is successful in repossessing the property from the landlord the tenancy passes to the lender. [3] The tenancy cannot be ended except in accordance with Part 5 of the Private Housing (Tenancies) (Scotland) Act 2016. [4] In practice, this means the lender must then apply to the First Tier Tribunal for an eviction order before they can remove the tenant.

The legislation covering private residential tenancies provides a ground for eviction if the lender is entitled to sell the property. See Private residential tenancies - Grounds for possession for more information.

If the landlord does not live in the accommodation and has granted a tenancy prior to 1st December 2017 (whether or not the tenancy is in writing) it is likely that the tenancy is an assured tenancy.

Assured tenancies can have significant implications for the conditions of a mortgage. Whilst in general, assured tenants have greater security of tenure than other kinds of tenants, an assured tenancy could amount to a default on the mortgage of the landlord. [5] This, in turn, could lead to complicated problems for the tenant.

Generally speaking, it is not in a mortgage lender's interests to have an assured tenant living in the property. This is because the strong security of tenure of an assured tenancy may impact upon the lender's legal interest in the property, should they require to gain possession of the property and sell it.

If, on examination of the facts, a tenant of a mortgage borrower appears to have an assured tenancy it may be difficult for either the landlord or the lender to evict the assured tenant. Tenants in this position should get legal advice:

• first to ascertain whether or not they have an assured tenancy, and

• secondly to defend any eviction action that the landlord may be bringing against them.

If the landlord does not live in the property and has granted a valid short assured tenancy, prior to 1st December 2017, the tenants will be short assured tenants.

It is important for tenants to be aware that because their landlord has a mortgage, this means that there is another legal obligation in respect of that property, on top of their lease with the landlord. This additional legal relationship exists between the landlord and the lender. From the lenders' point of view, the lease between the landlord and tenant is a secondary legal agreement subject to their ultimate right to repossess the property, should the landlord default on any of the mortgage conditions.

It may assist advisers to think of the structure of a buy-to-let mortgage scenario as a two-tier system:

• the first tier being the mortgage agreement between the lender and the landlord, and

• the second tier being the lease between the landlord and tenant.

A short assured tenant will normally have security of tenure only for the period specified in the short assured tenancy (usually either six or twelve months). However, the tenancy will automatically renew itself if it is not terminated validly at the end of each period. For more information see the section on short assured tenancies.

If the landlord is resident in the accommodation, the tenant will not be an assured or short assured tenant but will be a common law tenant. S/he may still have other rights. For more information, please see the section on common law tenants.

Most lending agreements stipulate that borrowers must first obtain the consent of the lender if they wish to let the property out. [6] If a borrower lets out their property without the prior consent of their lender then this can have implications for the tenant.

If the landlord has not obtained the consent of the lender then the tenant's position is slightly complicated. Their lease is still valid but it may be voidable at the instance of the lender. [7] In effect this means that should the lender obtain possession of the property the tenant will still have a right to live in the property, however, it is open to the lender to challenge the tenant's occupancy in court.

The important thing for advisers to remember in this situation is that the original court order for repossession of the property from the borrower most often will not affect the tenant's occupancy.

The occupancy of the tenant(s) must be challenged in a separate legal action. In this situation advisers should first ascertain what type of the tenancy the client has, as this affects their security of tenure.

Practically speaking it is easier for a lender to gain possession of a property subject to a short assured tenancy agreement as they can just wait until the end of the tenancy term and end the tenancy, provided they follow the correct procedure.

Private residential tenants are also at risk as the legislation allows a lender to evict in order to sell the property. [8]

For more information on how mortgage obligations affect tenants see tenancy is not binding on the lender.