Whilst the sector’s interest is almost entirely focused on the debate around the Housing (Scotland) Bill, and at the time of writing the Scottish Parliament are debating Stage 3 amendments, this blog will focus on a slightly more mundane subject and that is the question of awards of interest on First-tier Tribunal payment orders. We will certainly come back to the Housing (Scotland) Bill in the next blog when the stage 3 debate and amendments should have been completed.
The Upper Tribunal in a recent appeal against a decision of the First-tier Tribunal, looked at the issue of awarding interest on payment orders. The decision itself can be found here
What the Upper Tribunal looked at awarding interest where the tenancy agreement specified interest would apply on late payments as well as the contractual rate itself.
What power does the First-tier Tribunal have to award interest?
Unlike the courts, the tribunals cannot award what is called the “judicial rate” of interest, which is currently 8 percent per annum. What power the First-tier Tribunal does have in relation to awarding interest can be found in Rule 41A of the First-tier Tribunal for Scotland Housing and Property Chamber (Procedure) Regulations 2017 (the Regulations). Put briefly, that allows interest to be included in a payment order at either at the rate “stated in the relevant tenancy agreement” or another rate “ordered” by the tribunal. Incidentally, this power to award interest was not initially in the Regulations but was added by later amendment to the Regulations.
Does the First-tier Tribunal have to award interest if the lease says it is to apply?
The short answer to that is – no. The Upper Tribunal said that the wording of Rule 41A of the Regulations made it clear that “the inclusion of interest is discretionary in every case” including whether or not the lease provided for contractual interest to be charged. What the First-tier Tribunal requires to do is to determine first whether it is reasonable to award interest in the circumstances and then to look at what interest rate to apply.
What if there is a contractual interest rate provided for, will that always be awarded?
The short answer to this question is – probably! Perhaps somewhat unhelpfully, the Upper Tribunal stated that, when faced a claim based on a contractual right to seek interest and a specified contractual rate, there was “no general rule”. However, what the Upper Tribunal did say is that, when a First-tier Tribunal has exercised its discretion and decided that interest is to be applied and there is a contractual rate specified in the lease, there would have to be “cogent and compelling reasons to justify…departing from applying the contractual rate”.
What did the Upper Tribunal say about the rate of interest charged?
In this case, the rate applicable to late payment of rent was set out as 4 percent above the base rate of the Bank of Scotland. The tenants tried to argue that this was “excessive and unjustified”. The Upper Tribunal judge did not agree and stated, in the absence of any arguments about this rate being “some way out of kilter” with rates found in leases generally, that there seemed “to be nothing remarkable about the rate agreed between the parties”.
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