Compulsory sale and lease orders - Consultation analysis report

3. Compulsory Lease Orders

This chapter presents the analysis of responses to questions Q113 to Q116 of the consultation, which focused on CLOs. While there has been a longer-term discussion about CSO powers, discussions and calls for CLOs are more recent, and so responses to these questions were based on different interpretations of CLO and whether the lease would be to the local authority or to an unknown tenant, which could be an individual or another organisation, and some element of judgement has been applied throughout.

The Scottish Government is keen to hear stakeholder views on the value of CLO powers. This includes the circumstances in which they may be justified, the benefits and drawbacks of CLOs, whether procedures in preparing a CLO would need to be more onerous than those that apply to a CPO, and any other considerations.

As with Chapter 2 and CSOs, it should be noted that it is unclear whether respondents answered these questions based on CLO powers being available alongside the existing CPO process, or as part of a reformed CPO process that was the focus of the rest of the consultation. Respondents also had varying interpretations of CLO and whether the lease would be to the local authority (or other acquiring authority) or to an unknown tenant.

As there was considerable overlap in respondents’ answers to Q113 and Q114, the analysis below combines findings from these questions to avoid repetition.

Q.113 Should local authorities be able to instruct the lease of a property without permission from the property owner?

Opinion on this question was evenly split among those answering the closed question, with 51% in favour of local authorities being able to instruct the lease of a property without permission from the property owner, and 49% opposed. Individuals were more likely to disagree (70%) than agree (30%). Among organisations that answered, 64% agreed with the suggestion of CLO powers. This includes 64% of local authorities and all surveying, valuation and agents organisations.

Q.113 Should local authorities be able to instruct the lease of a property without permission from the property owner?

Q.114 In what circumstances might compulsory lease be justified, and what benefits or drawbacks might there be?

45% of all respondents left an open comment at Q113, and 55% at Q114. As Q114 contains three elements, this section is structured around those topics, i.e. where use of a CLO might be justified, benefits and drawbacks to its use. Due to this and the fact that responses to two questions are combined, prevalence order is not used to present the themes in this section.

Circumstances where compulsory leases could be justified

The main circumstances where compulsory leases could be justified, according to respondents, were to address vacant or derelict properties and homes. It was felt compulsory lease could be used to bring properties back into use if the property was likely to attract tenants and could be brought up to lettable standard. Additionally, it could be used in cases where a CPO or CSO is inappropriate or where steps to engage the owner on a voluntary basis have not worked.

In addition, it was felt that the use of CLOs could be justified if helping to regenerate town centres and retail or commercial premises, including retailers not meeting statutory obligations, for instance, selling goods without the required licence. Where a property contained both commercial and residential elements, one respondent suggested the residential part could be sold while the commercial part could be leased.

A small number of respondents noted a CLO could be used to address derelict sites or in the same circumstances as CSOs/CPOs. A few respondents suggested a CLO could be used in cases where land is needed temporarily in relation to green energy, construction or infrastructure developments. This might be equivalent to a CPO for temporary possession, as CLO powers would likely only be available to local authorities. One surveying, valuation & agents organisation anticipated future demand for leasing powers, if they were introduced, for these types of projects:

“Major public projects rarely require leasehold interests, however, with the evolution of onshore wind and solar, this is more common. The market has, so far, managed these transactions well in that landowners are fairly compensated with % of revenues (with minimum rents) from the green infrastructure project. However, suitable land is becoming increasingly rare, and sites are far more restricted, expect this to become a major issue in the next few years.” - Dalcour Maclaren

A CLO could also be used to offer a ‘stop gap’, such as where a business needs a site but is initially unable to afford to purchase it, or where permanent transfer is not possible, but a significant impact could be made during the lease term.

“We support exploring compulsory lease powers as a proportionate alternative to permanent acquisition in specific circumstances, such as temporary occupation for compounds, blade transfer areas, or offsite storage.” - Scottish Renewables

“The local authority has taken all reasonable steps to work with the owner on a voluntary basis, but this has failed.” - Scottish Empty Homes Partnership

Benefits of compulsory lease powers

Benefits of compulsory lease powers were identified at Q113 and Q114, each by a few respondents. These were that there could be benefits for owners, for communities and for local authorities. The main benefits identified by respondents were to increase options to address empty properties and homes and increase the number of rental properties in an area.

The benefits of retaining owners' rights while also enabling productive use of properties were cited by a few respondents. It was felt that owners could retain their asset while public gains could also occur. The ability to secure rights to access, maintenance or environmental obligations was noted as a benefit, as was the fact that owners would benefit from any improvements undertaken during the lease period.

A few respondents also highlighted that no upfront capital costs were required by the local authority, and that costs associated with bringing a property up to standard could be recouped by rental fees. Benefits could also be felt by communities as issues such as anti-social behaviour and dilapidated properties could be addressed, and one respondent noted tenants could benefit from an improved property, management standards and lease terms although it was unclear what comparison was used to identity these potential benefits. Another respondent felt the powers could be used for properties that are already habitable, while another noted the day-to-day running of the property could be outsourced.

“If the owner’s circumstances or the nature of the case makes a CSO a harsher step than is necessary, or there are other reasons to keep ownership with an existing owner while still securing housing use.” - Shelter Scotland

Drawbacks of compulsory lease powers

A range of perceived drawbacks was specified by respondents. In order of prevalence, these were the perceived burden for the local authority, that a CLO may have limited value, how to control relationships, the potential for legal disputes or challenges, impacts on owners and impacts on tenants.

Respondents, mostly local authorities, cited complexity or resourcing issues for local authorities associated with CLOs. These responded as if local authorities would be the leaseholder and act as the landlord to residential tenants. Resourcing costs highlighted included staff time, costs associated with repair, maintenance and compliance, dilapidations, interest or opportunity costs, management and service fees and insurance costs. Views included that such costs could be uncertain, not fully recoverable from rental income or more pronounced in rural areas. It was felt that the process of putting a case together for a CLO would be evidence-heavy and time-consuming, as would ongoing work to deal with the property, such as responsibilities for deposit protection, Energy Performance Certificates and licensing, including houses in multiple occupation if applicable.

“Unlike a sale, a lease creates an ongoing legal relationship requiring active management, compliance monitoring, and enforcement of tenancy obligations. This adds significant complexity, cost, and resource burden for councils, particularly in rural areas where capacity is limited.” - Scottish Land & Estates

Several respondents felt there would be limited value in CLOs, half of whom were local authorities. Considerations included that they may not be practical. For instance, if a CLO were time limited and intended to create a tenancy, this may not be possible as tenancies in Scotland are not time limited. Adjusting existing tenancy law to address this issue was suggested by one respondent, to develop a short-form letting option enabling flexible, time-limited leases where justified. Additionally, market failure, notably in town centres, could inhibit reletting according to one individual. It was also noted CLOs might be unsuitable for certain projects e.g. infrastructure developments.

A lack of clarity over relationships, or how to control relationships, was raised by some respondents. The need for ongoing relationships with the owner, which could prove challenging, was noted. It was felt there would be a need to impose standard terms should the landlord and tenant be unable to agree on terms; however, this could be unworkable if the landlord was not cooperative. In addition, cooperation would be required for repairs, insurance, access, consents and compliance. The need to clarify landlord responsibilities towards the tenant, as well as who the rent would be paid to, how the rent would be set and how the rent level would affect the compensation level, was also felt to be required.

Some respondents also highlighted the potential for legal disputes. These could occur in relation to challenges over rent levels, cost-recovery, timelines, and property condition upon return to the owner. The forced nature of the relationship between local authorities and owners was also seen as increasing the likelihood of disputes.

CLOs were also perceived as unfair and disproportionate by some respondents. Owners could be disadvantaged, according to a few respondents, such as through liability if terms were not aligned, difficulties determining compensation amounts, stress and uncertainty and disruption to ongoing property matters such as listing status, planning constraints or raising finances to redevelop or sell the property.

Two respondents highlighted the potential for abuse of such powers, for instance, being used strategically to avoid financial and political scrutiny that accompanies a compulsory purchase or used as a first, rather than last, resort.

Other views

Some respondents highlighted similar legislative options that already exist elsewhere. A few highlighted similarities with the Empty Dwelling Management Order in England, with three highlighting the need for resourcing with this, while the other felt CLOs could be introduced if aligned to this. Two respondents noted that High Street Rental Auctions have been introduced in England under Part 10 of the Levelling-up and Regeneration Act 2023. Finally, it was highlighted that the Digital Economy Act 2017 gives Code Operators a route to impose a lease on a landlord via the courts (in favour of the Operator).

Q.115 If a CLO process was introduced, would the procedures involved in preparing a CLO need to be more onerous than those that apply to a CPO?

Among those answering Q115, 60% felt that, if a CLO process is introduced, the procedures involved in preparing a CLO would not need to be more onerous than those that apply to a CPO, while 40% felt they would need to be more onerous. 67% of organisations that answered felt the procedures should not be more onerous, with most types of organisations holding this view, including 67% of local authorities. Conversely, 55% of individuals felt that the procedures for a CLO would need to be more onerous than for a CPO.

45% of all respondents left an open comment at Q115. Views varied on whether the CLO process should be more or less onerous than for a CPO, from those who suggested it would be more light touch, to others who felt it may be more thorough or need additional checks or scrutiny applied.

CLO process should be more thorough

Several respondents felt the CLO process should be more onerous than that for a CPO, with over half of these being individuals. In order of prevalence, reasons for this view included the:

• ongoing responsibilities it creates
• need to manage a tenant and leased asset
• intrusive nature of the intervention
• potential for stress and uncertainty for the owner.

“Yes. If a CLO process were introduced, the procedures would almost certainly need to be more onerous than those for a CPO. Unlike a one-off acquisition, a lease creates an ongoing legal relationship that requires active management, compliance monitoring, and enforcement of tenancy obligations. This adds layers of complexity and risk beyond the CPO framework, including safeguarding tenant rights, addressing maintenance responsibilities, and resolving disputes. CLOs would also need to replicate most CPO safeguards while introducing additional oversight for lease terms.” - Scottish Land & Estates

CLO process could be similar

Some respondents felt that the CLO process could be similar to that for CPOs. Views included that it could be the same process, that it should be at least as onerous but not more so, or that it could be similar but adapted to CLOs.

CLO process could be a lighter touch

A less onerous approach was advocated by some respondents. This was felt to avoid unduly complicating the process, facilitate ease of use and reflect the fact that the owner still retains ownership. However, a few respondents emphasised the need to still retain safeguards or ensure any CLO powers were in line with current CPO principles. Two respondents called for streamlined processes compared to a CPO, so that CLOs could be expedited, keep costs manageable, and reduce uncertainty for owners.

“Not if CLOs are more of a temporary measure to quickly establish or sustain an activity.” - The Royal Incorporation of Architects in Scotland

Additional checks or scrutiny

A few respondents called for monitoring and oversight, and two called for additional checks when preparing a CLO, such as stricter public interest tests and clear plans for managing the lease fairly. It was felt important to ensure necessity, for instance, to prevent CLOs from being used to acquire properties where purchase would be controversial or costly and to recognise the long-term nature of them.

Q.116 If you think there are any other measures or issues that we need to be aware of as part of our consideration of CLOs, please tell us more about these.

28% of all respondents left an open comment at Q116, covering a disparate range of views. Many of these themes, mostly raised by a few respondents each, have already been addressed at Q114, such as the need to provide clarity over rental income, considering costs incurred by the local authority and addressing the potential for disputes. Where relevant, these views were incorporated into the above questions.

The need for clear guidance

A few respondents called for clear guidance, to address, for instance:

• cost recovery for local authorities
• owners’ pathways back to ownership
• how ‘market rent’ is determined, reviewed and challenged to ensure fair compensation
• the need for quality standards
• repair and compliance obligations.

Other issues

Protecting the rights of tenants was recommended by a few respondents and one housebuilding and development organisation queried what happens if the tenant fails to maintain or breaches statutory duties. Engaging with stakeholders was also suggested by a few others, with two recommending creating legislation around CLOs with stakeholder groups, such as local authorities, community groups and housing rights organisations. One suggested a discussion with the UK Ministry of Housing, Communities and Local Government (MHCLG) to see if High Street Rental Auctions have been beneficial.

A few respondents raised the need to address leasing issues, such as in relation to the diversity of commercial and residential property. One highlighted, for instance, the need to address anti-avoidance measures such as connected leases from one entity to a related entity, especially relevant for commercial properties.

One local authority suggested alignment with local housing needs and policy should be an explicit factor in justifying a CLO and noted landlord registration requirements would be applicable, and that this could pose problems where the owner was a non-natural person, or an individual who would be deemed not fit and proper. Another anonymous local authority felt exemptions would need to be carefully considered e.g. a person’s only or main home if they are temporarily living elsewhere for work or care, or properties where there are issues with a deceased’s estate.

“Additional measures and issues that must be addressed include:

• Clear rules on how “market rent” is determined, reviewed and challenged, to ensure fair compensation.
• A mechanism for settling lease terms where parties do not agree and recognising that a “one size” statutory lease will not fit the diversity of commercial and residential property.
• Allocation of repair and compliance obligations, and what happens if the compulsory tenant fails to maintain or breaches statutory duties.
• Lender concerns: how CLO risk will be treated in underwriting and security, and whether CLOs could have a chilling effect on lending and investment in certain asset classes or locations.
• Exit routes: how and when a CLO can be terminated, and who bears reinstatement and dilapidations risk at lease end.

Without satisfactory answers, CLOs risk undermining confidence in property rights for relatively uncertain public gain.” - Scottish Property Federation

One surveying, valuation and agents body noted that licence holders under the Electricity Act 1989 have powers of compulsory purchase and onshore developers will usually lease land as opposed to owning it. They highlighted this is a clear example of where a ‘large scale public benefiting power scheme’ could benefit from the use of a CLO. However, they felt there was potential for friction between the no-scheme principle and fair compensation to the landowner (in reference to the ‘licence holder’ powers of compulsory purchase under section 10 of the Act).