Is the tenancy binding on the lender

Tenants who are unsure whether their tenancy is binding may find out by:

• contacting the landlord, the landlord's lender or the lender's solicitor to find out the date the mortgage was taken out

• asking a sheriff officer, from the sheriff court where the action for repossession was raised for a copy of the initial writ (this will give details of the standard security, including the date it was taken out)

• obtaining the details of the mortgage from the Land Register or the Register of Sasines.

Where the tenancy is binding the following applies:

Assured and short assured tenants

A lender cannot enforce a possession action on a lawful assured tenancy. The tenant retains full security of tenure over the property and the lender must raise the appropriate action at the First Tier Tribunal Housing and Property Chamber if they wish to gain possession of the property from the tenant. [1]

Private residential tenants

Where a lender is successful in repossessing the property from the landlord the tenancy passes to the lender. [2] ] The tenancy cannot be ended except in accordance with Part 5 of the Private Housing (Tenancies) (Scotland) Act 2016. [3] In practice, this means the lender must then apply to the First Tier Tribunal for an eviction order before they can remove the tenant.

Where the lender has gained possession from the borrower, the tenant should pay rent to the lender, who is now the new landlord. Tenants in this situation should write to their landlord's lender as soon as possible to confirm that their tenancy is still binding and to confirm rent payment arrangements. 

A tenant will have the right to remain as a tenant of the lender in the following situations:

The tenancy was granted prior to the date of the mortgage

If the borrower granted the tenancy before the standard security was taken out over the house, the tenant will be a lawful tenant. Any action taken by the lender against the borrower will not affect the right of the tenant to continue residing in the property.

The lender agrees to the tenancy

If the lender has agreed to the tenancy, the tenant's right to live in the property will not be affected by any legal action taken by the lender against the borrower. Some lenders grant mortgages that allow for tenants. If the borrower's property is repossessed in these circumstances, the tenant cannot be evicted with the decree for possession and they will remain in the property as the tenant of the lender.

The lender has expressly or implicitly recognised the tenancy

A lender may do something that either implicitly or explicitly recognises the validity of a tenancy. For example, the solicitor may write to the tenant requesting them to pay rent to the lender rather than their former landlord. However, it should be noted that the lender is entitled to recover money in respect of that person's occupation of the property if it has been repossessed, and this will not amount to a validation of the tenancy.

If the tenancy does not fit into any of the above situations, it may not be binding on the lender. Unfortunately, the majority of tenants are made aware that the lender is about to repossess the property when they receive notification of the enforcement action, or even when sheriff officers visit the property to enforce the possession order.

Common law tenants

Where a lender is attempting to take possession and the tenancy is a common law tenancy the position of the tenant is not secure. It seems likely the tenant would only have the right to remain in the house until legal action was taken against them personally, either by way of reduction of the lease (this is where a court annuls the tenancy), or an action for ejection in a sheriff court. It would be difficult to defend such an action.

Assured tenants

The most common situation in which the tenancy may not be binding on the lender is when it has been created after the standard security has been granted over the property. In this situation, the legal position is that the tenancy agreement is valid but may be voidable at the instance of the lender. [4] This means that the tenancy agreement remains in force until the lender successfully legally challenges it.

Lenders are required to obtain a separate possession order from the First Tier Tribunal Housing and Property Chamber before they evict any tenants. The order for possession in respect of the landlord's possession of the property has no effect upon any assured tenants' right to remain. [5]

Private residential tenants

The most common situation in which the tenancy may not be binding on the lender is when it has been created after the standard security has been granted over the property. In this situation, the legal position is that the tenancy agreement is valid but may be voidable at the instance of the lender. [6] This means that the tenancy agreement remains in force until the lender successfully legally challenges it.

Lenders may also raise a separate possession order from the First Tier Tribunal Housing and Property Chamber in order to evict any private residential tenants. [7]