Property Law Roundup
Welcome to the September issue of Andersons Strathern's Property Law Roundup.
In this month's issue we provide a case comment on the thorny issue of what amounts to "an interest to enforce" a title condition in the post feudal era. We also include a briefing on the Long Leases (Scotland) Bill, which will become law in the course of the current Scottish parliament, and other news items impacting on the property sector.
Recent case
A turning point for rights to enforce?
Briefing - Scottish ultra-long leases, the end is nigh
What leases will this change affect?
What will happen to obligations and undertakings in qualifying leases?
What should you do if you are a tenant under a qualifying long lease?
What should you do if you are a landlord?
News items
Renewing Scotland: The Government's Programme for Scotland 2011-2012
Scottish Government Economic Strategy
Housing Infrastructure Loan Fund
OFT consultation on draft guidance for estate agents and property developers
Recent case
A turning point for rights to enforce?
Cases dealing with enforcement of title conditions are not like buses in the deregulated transport market – they are few and far between. However, we have a second decision by a Sheriff on the vexed question of when owners who share title conditions, subject to a common scheme, have an interest to enforce those conditions against each other.
In the modern, post-feudal, era there is a statutory test: an owner has interest to enforce a title condition where "failure to comply with the real burden is resulting in or will result in material detriment to the value or enjoyment of the person's ownership" of the property. However, the question of what amounts to 'material detriment' is a question for a court to decide on the facts and circumstances in each case.
In Barker v Lewis in 2008, the first case to assess “material detriment, the Sheriff decided that running a house, in a converted steading property, as a B&B, with the regular traffic that such a use involves, was not sufficiently detrimental to entitle the other owners within the development to enforce a restriction on use of the properties to family homes. Although the interpretation of 'material' was lowered from 'substantial' to 'of significance or import' on appeal to the Sheriff Principal, the case has been widely criticised for placing the bar for successful challenge, on the basis of the statutory test, too high.
In this new decision, Turning Point intended to run their property as a care home for up to four adults with learning difficulties. The residents in the property would require round-the-clock care, with three carers staying at any one time. The property was in a cul-de-sac, in a quiet residential area of Bridge of Weir. The residential area was burdened by a title condition which required the owners to use each of their properties as living accommodation for no more than one family. The neighbours objected on several grounds: potential noise disturbance, traffic congestion and the fact that Turning Point also provided residential accommodation to people with mental health issues and drug or alcohol problems (though it was not proposed to use this property for occupiers other than adults with learning difficulties). The cumulative impact of these factors, they argued, was that the other residents' enjoyment of their properties would be impaired and the value of the properties would be reduced on sale.
The court decided that any noise disturbance by residents at the care home would not amount to “material detriment” to the enjoyment of neighbouring properties. However, the parking problems were likely to be 'significant, daily, regular and repeated', and this was sufficient to meet the threshold test for “material detriment” to the enjoyment of neighbouring properties. Further, evidence about the possible reduction in value of the properties was accepted by the court, and an estimated reduction in value of around 10% was considered material.
Kirsty Slee, Associate in our Property Litigation Team, comments:
"The Sheriff clearly set great store by the evidence he heard about value and, indeed, it is difficult to see how a reduction in value of around 10% could not be considered 'material' – whether that is 'substantial' or as 'of consequence' would seem to be by the by. However, the Sheriff thought it important that all the neighbours in the area had bought their properties in full knowledge of the restrictions on use as family homes. It was not unreasonable for the objecting neighbours to expect that the area would continue to be residential in the future. It remains to be seen how far this decision takes the interpretation of the test of material detriment, but the final comments of the Sheriff suggest that there may be further scope to reduce the bar of material detriment a little further.
On a tactical point, it is not clear why Turning Point did not try and have the condition varied via an application to the Lands Tribunal rather than run the gauntlet of the “material detriment test” in court. In correspondence before the case went to court, Turning Point had given clear undertakings to the neighbours on the type of residents who would live in the property. It is fair to say that it is only a small step from that to seeking a variation of the title condition to use for not more than four adults with learning disabilities. Of course, this type of application would still need to pass a reasonableness test at the Tribunal, but the frequency with which variations are allowed by the Tribunal may well be one reason why there is so little case law on the “material detriment” test."
Case referred to Kettlewell v Turning Point Scotland 2011 G.W.D. 26-582 (Sh Ct (North Strathclyde (Paisley).
Briefing
Scottish ultra-long leases, the end is nigh
The Long Leases (Scotland) Bill was introduced in the Parliament just short of a year ago, on 10 November 2010. However, with the Scottish elections taking place last May, the Bill fell before the Stage 1 general principles debate could take place. It is now clear that the Bill will be revived and will become law in the course of the current parliament. So it may be an idea to refresh your memory on what will happen to those long leases which became so much part of the property owning regime in Scotland.
In short, the tenant’s interest in a long lease of property which meets the criteria set out in the Bill will become a right of outright ownership on Whitsunday (28 May) or Martinmas (28 November), two years after the day on which a particular section of the Bill comes into force. The two year lead-in time to the change is to give landlords and tenants of long leases time to consider their positions and enter negotiations envisaged under the legislation.
What leases will this change affect?
Most leases which are either registered in the Land Register of Scotland or recorded in the General Register of Sasines, which were originally granted for a period of 175 years or more, and which have at least 100 years to run on the date chosen by the parliament, will disappear. However, some types of long lease meeting these criteria will not disappear. Those long leases which have an annual rent in excess of £100, leases of minerals and leases of land for the sole purpose of providing access to pipes or cables will remain in place.
What will happen to obligations and undertakings in qualifying leases?
Some conditions of long leases will be converted into real burdens on the appointed day. Those that regulate the use of the property can be converted into real burdens provided the landlord owns a property on which there is a building which is capable of habitation within 100 metres of the leased premises. Those burdens which provide for the maintenance of shared or common facilities will simply become facility burdens and will remain enforceable beyond the conversion date. As for a right of access over land not included in the leased premises which a tenant may have a right to in its lease, this will become a servitude right of access on conversion. Monetary obligations such as the payment of rent and irritancy provisions cannot be converted into real burdens. Other conditions will simply disappear.
What should you do if you are a tenant under a qualifying long lease?
The short answer to that in most cases will be nothing. Your right as tenant will automatically become a right of ownership on the appointed day. If however, the long lease under which a tenant holds a property imposes a valuable obligation on the landlord under the lease which the tenant does not wish to lose, the tenant can opt out of conversion by registering a notice of exemption.
What should you do if you are a landlord?
Landlords may stand to lose rights of control of use of the land being made by the tenant and, of course, the right to receive rent when the law changes. In addition to the right to have the ability to enforce use and maintenance burdens in the situation where the landlord owns a place of human habitation within 100 metres of the leased premises, the landlord can seek compensation for the loss of rental income for the unexpired duration of the lease. The amount of compensation payable depends on a number of factors. As a basic starting point, and as was the case with the redemption of feu duties back in the early 1970s, the rate to be applied to the rent in order to arrive at the compensation payment is 2.5% consolidated stock.
Fiona McKinnon, Senior Associate in our CRE Department, comments
"It is estimated that there are in the region of 9000 leases in Scotland which may qualify for conversion. Most will be for a period of between 175 and 999 years, although the Scottish Law Commission did discover a tack (an old form of lease) of 9000 years’ duration in the General Register of Sasines!
Additionally, there could be some high profile losses which may come to light given that local and enterprise authorities may have entered into leases of ground for development which qualify for conversion in the not too distant past. We have already seen comment in the press regarding a potential windfall accruing to the current tenant of Princes Mall shopping centre near Waverley Station in Edinburgh."
Please get in touch with Fiona if you would like further advice on the conversion process.
News
Renewing Scotland: The Government's Programme for Scotland 2011-2012
The Scottish Government has published its programme for the coming year, including its proposals for the next term of the Scottish Parliament.
In addition to the Long Leases (Scotland) Bill, of particular interest to the property industry is the introduction of a Bill to overhaul the Land Registration (Scotland) Act 1979. This will aim to bring the system of land registration into the 21st century whilst curing some of the problems that have come to light over indemnity since the 1979 Act came into force over 30 years ago. The proposals aim to accelerate the process of land registration and so increase the number of property titles backed by state guarantee under the Land Register. Additionally, the circumstances in which a person can recover their property rather than get compensation from the Keeper of the Registers will be looked at.
The Renewing Scotland document is available on the Scottish Government’s website, accessible here.
Scottish Government Economic Strategy
The programme for government also introduced the core elements of the government’s economic strategy, including: (1) the introduction of four Enterprise Areas; (2) the introduction of Transition to a Low Carbon Economy as a new strategic priority (including initiatives to improve energy efficiency and tackle fuel poverty to improve the quality of Scotland’s housing stock); and (3) prioritising spend on capital projects such as the Forth Replacement Crossing and Glasgow South Hospitals Project.
More information on the economic strategy is available on the Scottish Government’s website accessible here.
Housing Infrastructure Loan Fund
The Scottish Government has introduced a new £10 million loan fund offering repayable loans to support physical infrastructure for new housing developments such as roads, sewers, decontamination, flood remediation and demolition. This is aimed at assisting housing companies who are unable to secure private sector finance.
Details are available on the Scottish Government’s website accessible here.
OFT consultation on draft guidance for estate agents and property developers
The OFT has launched a consultation on draft guidance to estate agents and property developers on unfair trading and misleading marketing. The guidance focuses on the Consumer Protection from Unfair Trading Regulations 2008 and the Business Protection from Misleading Marketing Regulations 2008. The consultation follows the completion of the OFT’s Home Buying and Selling Study.
Details are available on the OFT website accessible here.
Regeneration research
The Scottish Government has published a review of current knowledge and practice in community-led regeneration. The report discusses the role of the community and social governance in community-led regeneration as well as providing examples of community-led regeneration models and case studies from the UK.
The report is available on the Scottish Government’s website accessible here.
Additionally, in a second research report, “Town Centre Regeneration: How Does it Work & What can be Achieved?", the Scottish Government looks at the activities taking place as part of town centre regeneration and the outputs and outcomes that follow on from these.
The report is available on the Scottish Government’s website accessible here.
This bulletin is for general information only and does not constitute legal, investment or other professional advice. Please contact us should you require advice on any particular legal issue. Anderson Strathern LLP accepts no responsibility for any loss that may arise if reliance is placed on any information or opinions expressed in this bulletin.
