Scottish Law Commission unveils blueprint for mandatory Tenement Owners’ Associations

The Scottish Law Commission (SLC) has now published its Report on Tenement Law: Compulsory Owners’ Associations (Scot Law Com No. 270), alongside a draft Tenements (Amendment) (Scotland) Bill.

The Scottish Government asked the SLC to consider how legislation might be used to introduce mandatory owners’ associations for Scottish tenements. The report and draft Bill provide an appropriate legislative basis should government be minded to progress with this policy.

The report is available on the SLC’s website here. The draft Tenements (Amendment) (Scotland) Bill can be found at Appendix A.

Tenements: as things stand

Under the Tenements (Scotland) Act 2004, a tenement is any building made up of flats or otherwise divided horizontally into sections. This definition includes traditional Victorian tenements, modern apartment buildings, high flats and larger properties converted into flats, among other things. Tenements may include a mixture of residential and commercial units.

The condition of Scotland’s tenements has been in decline for many years. The Scottish Housing Condition Survey for 2023 found that 45% of all dwellings have critical disrepair. Tenements account for a significant proportion of Scotland’s housing (around 37%). Attempts to address disrepair in these buildings is particularly challenging due to the need for flat owners to act collectively, within a legal framework (and arguably a culture) which does little to promote collective maintenance planning.

Background to the project

Since March 2018, the Scottish Parliamentary Working Group on Maintenance of Tenement Scheme Property has explored solutions to this challenge. The Working Group is composed of MSPs drawn from all parties represented at Holyrood, alongside key stakeholders including the Royal Institute of Chartered Surveyors, the Scottish Association of Landlords, the Property Managers Association Scotland (now part of The Property Institute) and local authority representatives.

The Working Group published a recommendations report in June 2019 with three principal recommendations. First, tenements should be subject to a building condition inspection every five years, highlighting necessary maintenance. Second, tenements should have an owners’ association in the form of an entity with legal personality, the members of which are the owners of the flats. Third, tenements should have a reserve fund to enable money to be saved for future works. These recommendations were broadly accepted by the Scottish Government.

It was recognised by the Working Group, and by the Government, that the introduction of compulsory owners’ associations was likely to be legally complex. Accordingly, the Scottish Government made a reference to the SLC in January 2022 to review the law in this area and make proposals for legislation to implement the owners’ association recommendation.    

The context and scope of the SLC’s report

The essence of the Working Group’s recommendation was that the owner of every tenement flat in Scotland should be required to enter into an association with the owners of the other flats in the same building. The key purpose of the association would be to manage maintenance and repair of the “common parts” of the building, with a view to keeping them in good condition. To best achieve that, the association would have legal personality separate from the flat owners, enabling it to contract for maintenance work and hold funds in its own name.

Developing a new framework for tenement maintenance was a significant undertaking for the SLC, culminating in a document of nearly 400 pages. Part of the challenge arose from the complex and fast-moving housing policy background, which continued to evolve as the project progressed. An overview of that landscape, together with consideration of potential legislative competence issues that may arise in relation to the introduction of owners’ associations, is set out in the first chapter of the report. The policy discussion is continued in Chapter 2, which records a range of extralegal issues raised with the SLC during its consultation.

Consideration of these issues by the Scottish Government is likely to be essential for any legislation following from the project to be implemented successfully.

What did the SLC recommend?

The report contains 95 recommendations relating to the introduction of owners’ associations, provision for which can be found in the draft Bill. An overview of the key recommendations can be found below.

• Owners’ associations will be established for tenement properties in Scotland by operation of law at specified points in time. Only tenements which are subject to the Development Management Scheme, and therefore already have an owners’ association, will be exempt.
• The owners’ association will be a new form of body corporate. The members of the association will be the owners of flats in the building. Where a flat is sold or otherwise transferred, the outgoing owner will cease to be a member and the new owner will become a member.
• The owners’ association should have a broad capacity to do anything reasonably necessary in connection with the management and maintenance of “association property”, meaning the common parts of the building. Decisions on how that capacity should be exercised will be taken by members, and liability for the costs incurred by the association as a result will be borne by members.
• Provision on how decisions can be taken and how liability for costs is to be divided should be set out in the “association rules”. A default set of rules will be included in legislation. Owners will be able to modify those rules by inserting new burdens, which comply with new statutory requirements, into their titles. Existing tenement burdens on relevant matters (such as the division of liability for maintenance) will disapply the default rules only during a transitional period of 20 years. After that deadline, unless new burdens have been registered, the default association rules will apply in full.
• An association should be subject to four key duties, intended to ensure that it functions at a basic level. They are:
  • to appoint a manager for the association;
  • to hold annual general meetings;
  • to approve a budget in respect of association costs for each financial year; and
  • to apply to have certain information noted on the property registers in respect of the tenement.
• Owners may appoint as manager any person who is willing to act, but unless that person is the owner of a flat in the building (a “self-manager”), the manager will require to comply with the requirements of the Property Factors (Scotland) Act 2011 including registering on the Scottish Property Factor Register.
• If owners fail to appoint a manager, any person with an interest (such as a flat owner, a tenant, a neighbour, the local authority or other relevant bodies) may apply to the Housing and Property Chamber of the First-tier Tribunal to have a manager appointed to the association. This is referred to in the Bill as a “remedial manager appointment”.
• The manager will exercise the powers of the association on its behalf on a day-to-day basis, generally in line with decisions taken by owners. The manager does, however, have limited powers to act without a relevant decision where necessary to ensure the association complies with its statutory duties outlined above. In particular, the manager may call an annual meeting and prepare an annual budget without the need for a decision. If owners fail to approve a budget, the manager may instead seek approval for a budget for essential works from the First-tier Tribunal.
• Further recommendations on enforcement are made, including that jurisdiction for tenement maintenance disputes should be transferred from the sheriff court to the First-tier Tribunal, and that diligence of land attachment should be made available to owners’ associations to enforce payment of maintenance debts by flat owners. 

Ultimate aim

These reforms aim to empower owners to maintain Scotland’s tenements, safeguarding housing quality and heritage for future generations.

It will now be for the Scottish Government to consider the SLC’s report and recommendations, and to decide whether to bring forward legislation to implement the Working Group’s aim.

Catherine Marney is a legal assistant at the Scottish Law Commission who worked on the tenements project with Professor Frankie McCarthy, lead commissioner for the project, and Stephen Crilly, solicitor and project manager.