Implications of the Homeowner & Debtor Protection (Scotland) Act 2010 on Commercial Property

The Homeowner and Debtor Protection (Scotland) Act 2010 may have passed unnoticed amongst those whose property assets are commercial based, however its implications are not limited to residential homes.

The political intention behind the new Act certainly was aimed at protecting vulnerable people and avoiding mortgage providers from making them homeless. However, there are concerns that the Act is so far reaching it may affect lenders when enforcing securities over some commercial property assets. There is a concern that any property portfolio with a “residential element” could be affected by the new laws which came into force on 30th September 2010.

The Act now makes Court action almost inevitable but introduces new steps which need to be followed before the Court action can be raised.

Lenders who are faced with debtors who are in default inevitably want to sell the properties quickly to reduce the debt. This can either happen by way of insolvency (often whereby an Administrator is appointed who would then sell the properties) or alternatively by calling up the bank’s Security and allowing the bank to directly sell on these properties. It is just the direct sale route which would become more difficult for the lender in all instances where secured properties include any residential elements e.g. residential homes or commercial premises which include any residential accommodation e.g where flats are above a ground floor shop and are owned by the same debtor.

Under current legislation, if the debtor defaults the lender can take steps to enter and re-sell a vacant property two months after formally notifying the owner of intent to recoup the debt. It is ordinarily only where a property is occupied and the lender wishes to remove the debtor that Court action would be required. However, after 30th September, Court action will be necessary in virtually every case involving any form of residential property.

Lenders will be faced with a situation whereby they will have to show that debtors, whether private individuals or commercial entities, have had every chance, and proper assistance, to resolve the default before even applying for Court action.

Lenders will obviously be considering how this will affect their operations and no doubt we will see some very lengthy disputes. It will be interesting to see how the courts react in the event that commercial entities try to use some of the protections under this Act which were primarily aimed at helping private individuals.

For more 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.