The Coronavirus (Scotland) (No. 2) Act

Key real estate and insolvency provisions


The Coronavirus (Scotland) (No2) Bill was passed on 20th May and received Royal Assent on 27th May, becoming The Coronavirus (Scotland) (No. 2) Act.

Why do we need another Act?

This Act adds to and extends the changes made by the Coronavirus (Scotland) Act 2020 which was passed by the Scottish Parliament on 1 April 2020. Legislation has also been passed by the UK Government which affects Scotland in the Coronvirus Act 2020.

What’s in the new Act?

The new Act will introduce further provisions to protect people facing financial hardship and allow public services to operate effectively during the COVID-19 (Coronavirus) pandemic. 
In this update, we summarise some of the key real estate and insolvency provisions in the new Act and discuss what they could mean for those affected.


Bankruptcy

The new Act will provide additional protections for those facing bankruptcy. The key proposals are:

  • To raise the minimum debt level an individual must owe before a creditor can make them bankrupt. This would be increased from £3,000 to £10,000.
  • To raise the upper limit for the availability of the minimal asset process (MAP) from the current £17,000 to £25,000 and to remove application fees

What effects will this have?

Raising the minimum debt level for bankruptcy complements the moratorium extension included in the Coronavirus 2020 (Scotland) Act. This provision extended the period of debt relief during which creditors cannot take any action against you for debts you owe them from 6 weeks to 6 months.

Together, these two provisions should help to ensure that those who are able to repay their debts in time once the initial financial crisis has passed will have enough time to do so. The provisions will also help ease pressure on the Accountant in Bankruptcy (AiB) by reducing applications during this time.

MAP bankruptcies are a route to bankruptcy for people with few assets. Raising the upper threshold for the availability of this process should mean that more people faced with debt will be able to avoid a long and expensive bankruptcy process. Added together with the moratorium extension in the previous Act, and the changes made to the Debt Arrangement Scheme last year there will effective solutions in place for those forced into unmanageable debt by the Coronavirus pandemic.

The proposed changes are likely to have a considerable effect on the volume of creditor petitions for sequestration as in our experience the majority of creditor petitions sit in the £3,000 to £10,000 bracket.  The threshold increases are initially in place until 30 September 2020 with power to extend the expiry by regulation to 31 March 2021 or 30 September 2021.

Real Estate

Business Rates 

The Act provides the Scottish Ministers with the power to introduce non-domestic rates relief in the year 2020/21 for all or part of the year, with the option to backdate to 1 April 2020. 

Other forms of relief for non-domestic rates payers have already been introduced by the Scottish Government such as the Business Support Fund, which offers grants to some business-rate payers with qualifying rateable values.

Register of Inhibitions 

The Register of Inhibitions (RoI) notifies the public about individuals who cannot competently enter into property transactions.  An inhibition is a block on someone being able to sell property, take out further loans on it or make changes to the maintenance responsibilities linked to that property. The reason someone’s name may be entered into the RoI includes bankruptcy, being in debt to a creditor or, in the case of a company, entering into administration. While the RoI is closed, documents relating to inhibitions cannot be registered, which means that creditors cannot access a route to debt recovery that would normally be available. Parties looking to discharge an inhibition are also denied this right during the closure. 

The Act makes provision for the creation of a digital system, allowing the full range of documents to be submitted electronically. This will assist landlords whose tenants have stopped paying rent for whilst the landlord cannot currently irritate the lease (due to the limitations imposed by the first Coronavirus (Scotland) Act). If a tenant owns heritable property in Scotland the landlord can inhibit the tenant from being able to sell that heritable property.  As was the case before the passing of this Act, on one hand this could be a useful tool for patient landlords prepared to play the long game especially where distressed tenants require to sell property assets to free up cash but, on the other, as the landlord will only receive its money on the sale of heritable property if the tenant does not sell the heritable property within five years it may, in many cases, be of limited assistance.

Limitations to Landlord Remedies

As noted above, the Coronavirus (Scotland) Act 2020 provided that tenants of commercial property must now be given 14 weeks’ (rather than 14 days’) prior notice of eviction for non-payment of rent, with the Scottish Government having the right to further extend the term.

In April 2020 the UK Government introduced measures to protect commercial tenants from aggressive rent collection and closure, banning the use of statutory demands (made between 1 March 2020 and 30 June 2020) and winding up petitions presented from Monday 27 April, through to 30 June, where a company cannot pay its bills due to coronavirus. The Corporate Insolvency and Governance Bill, published on 21 May, also applies to Scotland.

A landlord’s ability to effect summary diligence is also limited at this time.  Although not provided for in the Coronavirus legislation itself the effect of guidance issued by the professional organisation for Sheriff Officers that, at this time, only urgent work should be undertaken by their members and that debt recovery is not urgent work means that landlords may find it more difficult than previously to effect summary diligence.

Whilst landlords are unable to utilise remedies previously available to them, no announcements about measures to assist commercial landlords, who face the prospect of tenants unable to pay rent, been made. Support for Private Rental Landlords has been introduced by the Scottish Government by The Private Rent Sector Landlord COVID-19 Loan Scheme, a £5 million fund offering interest-free loans to landlords whose tenants are having difficulty paying rent during the coronavirus (COVID-19) crisis. Eligible landlords can be offered up to 100% of lost rental income for a single property. Currently, no similar assistance exists for commercial landlords.

Student Accommodation

Students living in the mainstream private rented sector have been able to end their tenancies early
by giving their landlord 28 days’ notice under the Private Housing (Tenancies) (Scotland) Act 2016. However, this legislation does not cover students living in Purpose Built Student Accommodation (PBSA). The new Coronavirus (Scotland) Act provides:

  • A 7-day notice to leave period for those currently tied into a student accommodation contract to terminate their agreements early
  • A 28-day notice to leave period for agreements entered into by students on or after 6 April 2020

The 7-day notice period will apply to current leases and those that commended before the Act becomes law. The reason for termination must be related to the Coronavirus. The Act does not expand on what related to means and this is therefore subject to interpretation. 

The 28 day notice period means that students could enter into a lease for the new academic term and this would mean that students could secure accommodation for the 2020-2021 term and terminate that agreement. whilst incurring limited liability, in the event that they not able to take up occupation due to Coronavirus. The new provisions relate only to lettings to students themselves and not, for example, to lettings to educational institutions.

What happens next?

The provisions of the second Coronavirus (Scotland) (No2) Act will automatically expire on 30 September 2020, though the Scottish Government have the power to extend this date by up to 12 months. In addition, Scottish Ministers must review and report on the measures every two months and if it is considered that the measures are no longer required, those measures could be removed.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at May 2020. Specific advice should be sought for specific cases. For more information see our terms & conditions.


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