Private lets at a premium

Let's take a look at a recent Housing and Property Chamber decision involving payments to reserve properties, which reflects on the nuances within the relevant regime.

With many of Scotland’s councils declaring a housing emergency and the Scottish Parliament doing likewise, prospective tenants can feel the pressure when it comes to securing a private let. Meanwhile, owners of suitable accommodation may seek to capitalise on this situation, but there are rules which seek to prevent unscrupulous landlord behaviour from going too far, covering any payments required or received in connection with the grant or transfer of a tenancy. A recent case at the Housing and Property Chamber (HPC) of the First-tier Tribunal for Scotland serves as a timely reminder of the relevant regime.

Anyone who requires a payment as a condition for the grant, renewal or continuance of a “protected tenancy” (and anyone who receives such a payment) is guilty of a criminal offence and such a payment can be forfeit, all in terms of Section 82 of the Rent (Scotland) Act 1984. A prohibition also applies to payments for the assignation of a protected tenancy (under Section 83 of the 1984 Act). A private residential tenancy – being the prevailing private sector tenancy for lets of a home – is brought within this regime by Section 20 of the Private Housing (Tenancies) (Scotland) Act 2016.

The assignation fee aspect of regulation was evident in the sheriff court case of Cross v Aberdeen Property Leasing 2014 S.L.T. (Sh Ct) 46 (discussed by Holly Bruce et al in the Journal article, ‘Premium result’). That case was brought by students volunteering at The Aberdeen Law Project on behalf of someone who had been required to pay an “administration fee” prior to the transfer of the interest in a lease. Continuing with the pro bono student legal advice theme, the new case of FTS/HPC/CV/23/4262 was brought by a student from Strathclyde Law Clinic.

There are not many cases listed on the HPC’s website under Rule 87 (the relevant procedural route to the tribunal). There is a single case listed for each year since 2018, apart from 2022 (where there are two). The only successful application displayed there prior to the 2024 case under discussion is FTS/HPC/PR/21/3082. In this case, a prospective tenant had paid a deposit of £425 for a property in Glasgow that he had viewed online, but was not ultimately rented after a physical viewing. When a refund was requested, £400 was paid under deduction of £25 as an “administration fee”. This was classified as an unlawful premium and recoverable via Section 88 of the 1984 Act.

The apparent lack of successful Rule 87 applications on the HPC’s website only tells part of the story, as the case of Floyd v Gettka 2022 UT 12 reached the Upper Tribunal. Floyd related to a council tax liability which was properly the landlord’s and as such a payment by the tenant of approximately £1,400 made with that liability in mind was caught by Section 82(2) of the 1984 Act. (This case also provides an interesting example of a tribunal review, where Sheriff di Emidio realised he needed to reconsider a point in light of Section 82, which he had only partially wrestled with at first.)

The 2024 case was much less complicated. Here, prospective tenants had paid the sum of £1,325 to reserve a flat in Paisley. No lease was entered into, and the prospective tenants changed their minds (apparently owing to concerns about the landlord’s practices). The flat owner refused to repay it. The payment was characterised by the tribunal as a premium in terms of the Section 90(1) definition (being a sum or pecuniary consideration other than rent). It was accordingly repayable.

While it is understandable that prospective landlords will want to make sure they are dealing with genuinely interested future tenants, they must act within the law when they are doing that. Of course, it is fine to ask for a deposit to secure a tenant’s obligations under any lease that is entered into, subject to various rules around deposits – including a cap of two months’ rent, as set out in the 1984 Act, Section 90(3), and landlord compliance with the rules around tenancy deposits (The Tenancy Deposit Schemes (Scotland) Regulations 2011 (SSI 2011/176), building on the Housing (Scotland) Act 2006, Sections 120-123). What is not allowed is conduct of the sort discussed in this article.

A further activity that might not be allowed is any payment of “returnable holding fee”, being something else I have heard tell of. This apparently involves the transfer of a sum of money from an incoming tenant to a landlord, with a view to returning that sum when a tenant moves in. Presumably this practice is aimed at demonstrating a tenant’s cashflow capabilities, but this too is questionable, because the 1984 Act also strikes at loans as well as payments.

The law relating to premiums might not lead to much in the way of litigation. Perhaps this is because the law is relatively clear, or perhaps those who could have the law on their side simply do not realise the 1984 Act is there to help them. Either way, a reminder of the relevant law is no bad thing, and hopefully this article and the highlighted cases go some way to ensuring both tenants and landlords know what is acceptable in this field.

Written by Malcolm Combe – with thanks to Afton Cook, a student on the Clinical LLB at the University of Strathclyde, both for her work on the case itself and for discussing it with me. For further details of the law in this area, see Chapter 8 of Peter Robson and Malcolm M Combe, ‘Residential Tenancies: Private and Social Renting in Scotland’ (W. Green, 2019)