Landlord’s failure to register did not render tenant’s lease agreement an illegal contract

The Sheriff Appeal Court upheld the sheriff’s ruling that the landlord’s breach of certain statutory obligations did not render the lease agreement void and therefore the tenant was not entitled to avoid paying the outstanding rent.

Sheriff Principal Duncan Murray heard that the appeal by stated case against the decision of the sheriff to find the defender and appellant “CD” liable to pay the pursuer and respondent “AB” £787.50.

Lease agreement

The appellant, who was the tenant of the respondent’s property in Balloch between 1 April 2016 and 31 October 2016, had signed a lease agreement and paid a deposit of £112.50, with rent

payable at £450 a month.

However, the deposit was not placed in a Tenancy Deposit Scheme Account and a document provided to the appellant headed “Tenant Information Pack” did not comply with the statutory requirement of section 30A of the Housing (Scotland) Act 1988 to provide “standard tenancy documents”.

The respondent was not a registered landlord with West Dunbartonshire Council at the relevant period and was in consequence in breach of section 93 in part 8 of the Antisocial Behaviour etc. (Scotland) Act 2004, which provides that a person who is not registered and who lets a house or takes active steps to do so while not registered commits a criminal offence punishable by a fine.

When the appellant vacated the property on 31 October two months’ rent was outstanding, but the sheriff, having found that the legal relationship between the parties was that of landlord and tenant, that the pursuer had title to sue the defender, and that the action was competent, ruled that the defender was liable to pay the pursuer two months’ rent minus the deposit.

‘Illegal contract’

However, on behalf of the appellant a lay representative argued that the respondent’s breach of various regulations resulted in the lease being an “illegal contract”, which meant that no rent was due.

Founding on Jamieson v Watt’s Trustee 1950 SC 265, the appellant submitted that given the breaches of the statutory obligations by the respondent the lease was void and should not be given effect to by the court.

Accordingly, the sheriff should not have found there was a relationship of landlord and tenant between the respondent and the appellant and the respondent had no title to sue the appellant.

But on behalf of the respondent it was that the admitted breaches of the 2004 Act and 1988 Act did not to render the contract illegal. Accordingly, the lease remained valid, the respondent had title to sue and the rent payable remained due.

It was further submitted that the sheriff was correct in what he stated that it could not have been the intention of the Scottish Parliament that a lease entered into by an unregistered landlord was void as that would result in the public being “exposed to a lack of protection from unscrupulous landlords”. The same argument applied in the context of the 1988 Act.

The sheriff was therefore correct to have concluded that the respondent’s failings did not impact on the validity of the lease - the illegality was in the implementation, not the formation of the contract.

Breaches did not render contract void

Refusing the appeal, the court observed that it could not be said that in every case where a contract is subject to a penalty its illegality and consequent avoidance follow.

Delivering the opinion of the court, Sheriff Principal Murray said: “The penalties imposed for a failure to comply with the tenancy deposit scheme arrangements are in the nature of civil penalties and there is no question of the respondent’s contravention of the Tenancy Deposit (Scheme) Regulations 2011 rendering the contract unenforceable as an illegal contract. Consideration of the appellant’s argument is therefore in relation to the respondent’s failure to register as a landlord in contravention of part 8 of the 2004 Act and to provide the appellant with the ‘standard tenancy documents’ in terms of section 30A of the Housing (Scotland) Act 1988.

“The failure to be registered and the failure to provide the Tenancy Information Pack must be seen as breaches in the context of the formation of the contract. They are actions to be undertaken prior to or at the point of entering into a lease in the case of the information pack. But in neither case is the statutory illegality said to affect the contract itself: the illegality is failing to be registered and to provide the tenant information pack.

“The failure to register as a landlord and to provide the standard tenancy document which are offences do not in the context of the statutes result in the appellant being entitled to avoid the contract where there has been performance. The statutory provisions here fall within an exception to the general proposition that where a contract is subject to a penalty its illegality and consequent avoidance is implied.”