Implications of the Housing (Scotland) Bill for Affordable Housing

The Housing (Scotland) Bill is currently is the process of being considered by the Scottish Government. Whilst there are a number of areas which would be affected if the bill is passed, this briefing will focus solely on amendments which have been tabled and their implications on the provision of affordable housing in Scotland.

The proposed amendments to the Bill will remove two rules laid down by the Land Tenure Reform (Scotland) Act 1974 which are widely considered to hamper innovation in developing funding mechanisms for the supply of affordable housing.

The two rules are as follows:-

1. The Lease Rule

Under the 1974 Act there cannot be a long lease of land or property for residential housing with a term of more than 20 years. The Land Register require leases to be in excess of 20 years before they will register same and if registered can thereafter be
used as collateral for lender’s securities.

2. The Standard Security Rule

This rule allows a borrower to redeem any Standard Security over land or property for residential housing leased at any time after the 20 year period has lapsed (on payment of any outstanding loan plus reasonable interest or charges). This rule causes uncertainty for lenders who require to fix or hedge interest rates for a longer period.

These rules have been considered a barrier to new models of affordable housing projects mainly due to the fact that many funders usually require the security afforded by a registered title and fixed loan term. At present the only way to achieve this is through outright ownership.

The proposed amendments to the Housing (Scotland) Bill dis-apply both rules for “social landlords”. Social landlords are defined in the Bill as registered social landlords, local authority landlords or local authorities providing housing services and their connected bodies (ie subsidiaries of a registered social landlord or local authority landlord). There has also been a further amendment proposed by Alasdair Morgan MSP to include rural housing bodies which would allow smaller community landlords this greater flexibility.

By removing the “Lease Rule” social landlords will be able to lease property over a duration which is more likely to be economically viable. By removing the “Standard Security Rule” there will be more flexibility to allow innovative financing models for affordable residential housing to become more attractive to lenders.

The Bill is currently at stage 2 in the parliamentary process and is under consideration from local government and community committees. The Scottish Law Commission will be tasked with carrying out a full review of the effect of removing the rules altogether to ensure the law of unintended consequences does not adversely affect the land tenure system once again.

We will be monitoring the progress of the Bill and its implications for social landlords. At this stage we would be more than happy to discuss the proposed implications for our clients.

For further information please contact Corra Irwin or Katrina Ashbolt.

Disclaimer:  The information in this publication is based on the current understanding of the law. It has been produced for information purposes only. Professional advice should always be sought before taking any action.

Macleod & MacCallum cannot take any responsibility for loss incurred through acting or failing to act on the basis of anything contained in this publication.