Premium result

The position of the law concerning tenancy premiums charged prior to 2011 has long been unclear. However, a decision by the sheriff court in Cross v Aberdeen Property Leasing Ltd 2014 GWD 8-163, holds the charging of administration fees as an illegal premium.

The case was brought by The Aberdeen Law Project, a student-run pro bono law clinic.

Charging of illegal premiums and the effect they have had on the housing sector has been debated since 1954. Macdonald v John Laing & Son 1954 SLT (Sh Ct) 77, 78) considered that the rent acts are “directed not only to preventing landlords receiving payments in addition to rent but to protecting tenants against being required to make such payments”. This case was the first attempt to deal with the word “premium”, as it was not expressly defined in the Act. The courts concluded that it meant “any fine or other like sum and any other pecuniary consideration in addition to rent”.

Likewise, in Woods v Wise [1954] 2 QB 29, 51), Lord Justice Birkett outlined the history of Rent Act legislation, which showed that “one of the primary purposes was to make sure that the landlord could not wreck the whole design by obtaining, in one way or another, sums of money from the tenant in addition to the permitted or standard rent”. This case held that a fee charged on condition of the grant of a tenancy would constitute an illegal premium.

In Elmdene Estates Ltd v White [1960] AC 528, 542), Lord Radcliffe went further and defined “pecuniary consideration” as “whatever the benefit obtained by the landlord or the detriment suffered by the tenant is expressed in terms of money”.

Legislation trail

The Scots legislative parameters are contained within the Rent (Scotland) Act 1984, the Housing (Scotland) Act 1988 and the Private Rented Housing (Scotland) Act 2011. Section 82 of the 1984 Act explicitly states that “any person who, as a condition of the grant, renewal or continuance of a protected tenancy, requires in addition to the rent, the payment of any premium or the making of any loan… shall be guilty of an offence under this section”. Section 90 of the 1984 Act stated that a premium includes “any fine or other sum and any other pecuniary consideration in addition to rent”. Section 32(3) of the 2011 Act altered this wording to explicitly include “any service or administration fee or charge”. These changes were pursued by the Scottish Government to clarify housing law in Scotland.

The explanatory note to the 2011 Act set out the reasons behind this amendment. The Government’s motivation was “to support responsible landlords and address more effectively the problems caused by landlords who act unlawfully, by strengthening the regulation of the private rented sector”. Alex Neil, Minister for Housing and Communities, said: “The bill plays a key part in the development of the long-term strategy by protecting the reputation of good landlords and tackling the minority of bad landlords who are acting illegally. In that way, we believe that we can enhance the reputation and performance of the sector.” The “clarity” issue at the heart of Cross was whether under the 1984 Act administration fees were illegal, despite these only being explicitly mentioned in the changes made by the 2011 Act.

Cross has clarified the position of Scots law, confirming the prohibition of administration fees, which have been found to have always constituted an illegal premium under the 1984 Act. The defender had required the pursuer to pay an “administration fee” of £35.94 per co-lessee as a condition of the agreement. The point at issue was whether this charge fell within the definition of “premium”. The defender submitted that “the law always allowed administration charges which were reasonable and a reflection of actual costs incurred on behalf of the tenants”, and therefore “the administration fees charged by the defender were permitted”. However, Sheriff Lewis held that the fee imposed fell within the scope of the statutory prohibition, and therefore reasonableness did not apply. It was a “pecuniary consideration in addition to rent”, and “accordingly the pursuers are entitled to the return of it”. The sheriff stated that the definition of “premium” in the 2011 Act “was not changed – it was improved to make it crystal clear to all involved in residential leasing that administration fees ought not to have been imposed and ought not to be imposed”.

Wider considerations

It is important to note that, while this case expressly concerned administration fees, it has helped to clarify the law regarding premiums generally. Sheriff Lewis also made it clear that any “pecuniary consideration in addition to rent” means just that, and any additional costs should be covered by the rent being charged to the tenant. The case confirms the longstanding position of Professor Peter Robson (Residential Tenancies (3rd ed), para 8.06), and has been welcomed by advocate Adrian Stalker in his regular SCOLAG housing law cases roundup (March 2014).

The 2011 Act was created to provide certainty with regard to illegal premiums. It is important
to note, however, that s 32 of the 2011 Act inserts the provision that “Scottish Ministers may by regulations make provision about sums which may be charged in connection with the grant, renewal or continuance of a protected tenancy.” Therefore in definitively closing one door, the 2011 Act has arguably opened another. For example under the Rent (Scotland) Act 1984 (Premiums) Regulations 2012 (SSI 2012/329), Green Deal plan payments towards energy efficiency improvements are not to be treated as a premium. This could potentially have a detrimental impact on this new-found clarity if the door is pushed open any further.