Call it a comeback

Local authorities have a toolkit of statutory procedures available to them when dealing with problematic buildings. Often, this involves an order or notice to the owner of the offending building requiring them to take steps to rectify the problem. If the notice is not complied with, the local authority can step in and do the work itself, and seek repayment from the owner.

Work undertaken in this way can range from fixing holes in the roof to complete demolition. The question in the minds of those entrusted with the expenditure of public funds will be, what if the owner of the property won’t pay? At the moment, some enactments go further than others in protecting the local authority’s investment.

The Housing (Scotland) Acts 1987 and 2006 provide some of these statutory schemes. Where work required by notices served under these Acts is not done, the local authority may undertake it and recover the expense from the owner. Both Acts allow the local authority to register a charge against the title to the property concerned as security for those expenses. Section 131 of and sched 9 to the 1987 Act allow the local authority to make a “charging order” in favour of itself, and s 172 of the 2006 Act provides for a “repayment charge”. The provisions are not identical, which may explain the differing nomenclature, but they have several similarities. In particular, both charges, once registered, rank prior to all future burdens, and the lion’s share of existing ones. On disposal of the property the local authority will be repaid before almost everyone, including the holders of standard securities.

These are powerful weapons in the local authority’s armoury when addressing problem housing within its area. Other statutory procedures to improve property, including non-domestic buildings, can be undertaken using the Building (Scotland) Act 2003. However, as far as financial enforcement is concerned at least, the 2003 Act is not quite as powerful.

Missing link

Part 3 of the 2003 Act concerns compliance with building regulations. Each of ss 25-27 provides for notices on owners of buildings which have issues in that regard. Part 4 concerns defective and dangerous buildings. Sections 28 and 30 allow notices to be served requiring the owner to take steps to address the problem. If the required work under each of these notices is not undertaken by the owner, the local authority may complete it and recover from the owner any expenses reasonably incurred. In addition, s 29 obliges a local authority to do work without notice on a dangerous building in some circumstances. Once that work is done, again the local authority can recover reasonable expenses.

But that is where, at present, the similarities with the notices under the housing legislation end. As the law stands, the 2003 Act does not allow a local authority to register a charge to act as security. It would require to seek payment of its expenses as it would any other debt. This comparative lack of protection might make using the 2003 Act less attractive to a local authority, given the greater degree of risk as to whether it will obtain repayment of its expenses. 

However, this is set to change. On 19 June 2014 the Scottish Parliament passed the Buildings (Recovery of Expenses) (Scotland) Bill. The operative sections will come into force six months from Royal Assent (i.e. on 24 January 2015) and will amend ss 44 and 47 of, and insert new ss 46A-46H in, the 2003 Act. 

Scheme of the charge

The new s 46A provides that a local authority entitled to recover expenses under parts 3 and 4 of the 2003 Act may make a charging order in its own favour. The order should specify the building concerned and charge it with the repayable amount. Section 46A also allows forms to be provided for a charging order and a discharge of a charging order. 

Section 46B concerns qualifying expenses. These are the expenses recoverable under the relevant parts of the 2003 Act. Section 46C contains the calculation for the repayable amount. This is the lower of either the total of the qualifying expenses together with registration dues, administrative expenses and interest at a reasonable rate, or an amount determined by the local authority. This allows the local authority to exercise discretion to register a charge in a lower amount where it is appropriate to do so. The local authority may also determine the number of annual instalments in which the repayable amount is to be repaid, between a minimum of five and a maximum of 30.

Section 46D contains core terms which a charging order must provide. These are: (a) that the repayable amount is payable in the determined number of instalments on the appropriate date each year; (b) that in default of payment of an instalment, it is to be separately recoverable as a debt; and (c) that if following the final instalment falling due any balance of the repayable amount remains unpaid, that balance is immediately due for repayment and is recoverable as a debt.

Under section 46E, the local authority is obliged to register the charging order in the appropriate land register. On registration of a charging order, the charge specified in it is created and may be enforced at the instance of the local authority. As soon as the appropriate amount is repaid, the local authority is obliged to register a discharge, clearing the burden from the title.

Section 46F applies where a charging order is registered at least 14 days before a new owner acquires right to the building. In that case the new owner is severally liable with the former owner to the local authority for the repayable amount.

Under section 46G, former owners do not cease to be liable for the repayable amount. Additionally, a new owner who pays the repayable amount may recover it from the former owner. 

Section 1(c) of the new Act amends s 47 of the 2003 Act to provide for an appeal against any charging order made under s 46A. In such an appeal, no question may be raised which might have been raised on an appeal against the original notice or decision requiring the execution of the works to which the charging order relates.

Continuing obligation

The new charging order is not identical to those already available to the local authority. First, the normal chronological rules on ranking apply, so the charge under the new provisions will not trump the rights of an existing heritable creditor. Secondly, the several liability of new and future owners means that local authorities would in effect have a choice as to who they pursued for arrears in repayments. Thirdly, the arrears in payments under the charging order are pursued as a debt, meaning that the new security cannot be called up. Finally, the law does not mandate a 30-year period for repayment of the “loan”.

Although the new charging order does not provide the iron-clad protection of its cousins available under the housing legislation (and elsewhere), it will nonetheless help to ensure that local authorities receive repayment of sums expended in addressing problem buildings in their areas. When burdened properties change hands it will be a condition of the transaction that the title is cleared in the vast majority of cases. It will therefore be necessary to settle the debt to the local authority and obtain a discharge. 

The effect of this may be that local authorities will be more willing to incur expenses under the 2003 Act. Housing legislation is designed to deal with houses which have certain problems, but it is not only people’s homes which can have these difficulties. This is a positive step for anyone who thinks more should be done by local authorities to protect and improve the built environment, and will facilitate safer spending of public money.

The new legislation brings the law roughly back into the form it was in prior to the coming into force of the 2003 Act. That Act repealed the Building (Scotland) Act 1959, which allowed a local authority to serve a dangerous building notice, undertake works in cases of non-compliance and register a charging order to secure the expenses. As far as dangerous building notices are concerned, it seems that charging orders are making a comeback.