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You are here: BAILII >> Databases >> Scottish Law Commission >> Scottish Law Commission (Reports) >> Conversion of Long Leases (Report) [2006] SLC 204(1) (December 2006) URL: http://www.bailii.org/scot/other/SLC/Report/2006/204(1).html Cite as: [2006] SLC 204(1) |
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PART 1: INTRODUCTION
Background
1.1 In recent years we have been engaged in a major review of the structure of land law in Scotland. Our Report on Abolition of the Feudal System (1999)[1] was implemented by the Abolition of Feudal Tenure etc. (Scotland) Act 2000, and our Report on Real Burdens (2000)[2] by the Title Conditions (Scotland) Act 2003. A slightly earlier report, on the Law of the Tenement (1998),[3] was implemented by the Tenements (Scotland) Act 2004. Although important work remains to be done in other areas of property law,[4] the present report marks the final stage of this structural review.[5] In essence it seeks to apply to certain types of long lease the principle of conversion already applied to feus by the Abolition of Feudal Tenure etc. (Scotland) Act 2000. Under that Act all feus were converted into ownership, on a day known as the "appointed day". On that day feudal vassals became outright owners.[6] The present report seeks to extend that scheme to tenants holding under certain categories of long lease.[7]
1.2 Other work has been carried out on the law of leases. Our Report on Leasehold Casualties (1998)[8] was implemented by the Leasehold Casualties (Scotland) Act 2001. The Act abolished the casualties - payments due on assignation and on certain other occasions - payable under some long leases. It also abolished the remedy of irritancy for most leases of 175 years or more.[9] Our Report on Irritancy in Leases of Land (2003)[10] recommended the introduction of a comprehensive statutory scheme regulating irritancy as it applies to all leases of land, including commercial agricultural and residential leases. However, we have no plans to consider the law of landlord and tenant more generally.
1.3 Our ideas on the conversion of long leases were first set out in a discussion paper published in 2001.[11] We have benefited from comments received on this paper,[12] as well as from the views, at two separate meetings, of our advisory group on leasehold conversion.[13] A number of other people helped us in various ways.[14] To all we are grateful.
Empirical work
1.4 A study of the incidence of long leases was carried out in 1951 for the Scottish Leases Committee chaired by Lord Guthrie. This involved an examination of all search sheets in the Register of Sasines for the period 1905-1951. The results, which disclosed 13,151 current leases, were tabulated both by length of initial grant and by unexpired duration. Almost 9,000 leases were found to have more than 100 years still to run.[15] For the purposes of preparing this paper we have carried out a major study of our own, based on entries in the Land Register for the counties of Ayr, Clackmannan, Lanark, and Renfrew. In all we considered around 2,500 leases. As well as noting initial length and unexpired duration we also investigated the year of grant, the amount of rent payable, the type of property, whether there had been subletting or a partial assignation following division, and whether the minerals had been excepted. The full results are given in appendix C. We are indebted to the Registers of Scotland for making the source material available and for putting the expertise of their staff at our disposal. Taken together, these two studies make it possible to draw a reasonably full picture of the incidence and use of long leases in Scotland today, and this has made our task of law reform much simpler than would otherwise have been the case. Our understanding was further increased by the knowledge and experience of those solicitors who wrote to us on this subject in response to an advertisement in the legal press.
What is a long lease?
1.5 By "long lease" is usually meant a lease that is sufficiently long to be registrable in the property registers, that is to say, in the Land Register or the Register of Sasines.[16] Registration of long leases - or "tacks" to use the traditional name - first became possible in 1857.[17] It is now compulsory in the sense that a real right cannot be obtained otherwise than by registration.[18] Originally a lease could only be registered if it had been granted for more than 31 years,[19] but the figure was reduced to 20 years in 1974.[20] A long lease, therefore, is any lease with an initial duration of more than 20 years. Until modern times there was no upward limit and leases could be, and sometimes were, of prodigious length. Our survey disclosed 11 leases granted for a million years, all for property in Paisley. Since 1974 new residential leases have been restricted to 20 years and so cannot be long leases;[21] and since 2000 it has no longer been possible to grant any type of lease for more than 175 years.[22] Both restrictions were designed to prevent the creation of a second feudal system by means of long leases.
1.6 Our survey makes clear that there are really two types of long lease. First, there are leases of moderate duration - leases of anything from 20 to 125 years, but with a concentration in the lower part of the range. And then there are leases which may be characterised as "ultra-long" - leases for 700 years or more, but typically for 999 years. Almost one half of all leases in our sample were granted for 999 years.[23] The former are genuine leases. The land is let with the intention that it be returned in due course; and the residual ownership of the landlord is of value. The latter are quasi-feus, and the tenants quasi-owners; and, apart from a right to receive rent, the whole economic value in the land lies with the tenant.
1.7 Many of the ultra-long leases date from the period before 1900. Often they were used as alternatives to feus in cases where feuing was not permitted. Land held on burgage tenure could not be feued,[24] while in the case of other tenures feuing was sometimes forbidden in the original charter.[25] But the main obstacle was the entail. It is estimated that in 1825 half of the territorial property of Scotland was entailed, and the percentage continued to rise during the next 50 years.[26] Entailed land could not be feued at all until 1848,[27] and not freely until 1914.[28] Many long leases, therefore, were substitutes for feus. Of course this is not the whole story. Our survey shows that ultra-long leases continued to be granted after 1914, when the restrictions on entails fell away;[29] and doubtless leases were sometimes granted before that date for reasons which had nothing to do with entails, for example because they were simpler and therefore cheaper, or because of local estate practice. But long leases were never popular in Scotland in the manner of south of the border, where the alternative of feuing was not available.[30] In Scotland feus were usually preferred to leases; and where leases were used it tended to be because feuing was not possible. It must be stressed, however, that from a functional point of view there was - and is - little to choose between the two.[31] Both provide an income stream for the granter, and both allow the imposition of use restrictions and other obligations on the grantee. A feu was sometimes analysed as a lease of perpetual duration,[32] and many ultra-long leases too approached perpetuity in duration.
Earlier conversion schemes
1.8 The role of the 2000 Act in converting feus to ownership has already been mentioned. A scheme for the conversion of long leases was introduced by the Long Leases (Scotland) Act 1954 and was in operation between 1954 and 1959. This implemented the recommendations of the Guthrie Committee, mentioned earlier. A lease was eligible for conversion if it was of residential property and had been granted before 10 August 1914 for a period of at least 50 years.[33] The cut-off date of 1914 was an acknowledgement of the restrictions on the feuing of entailed property which were in operation until then. Conversion was at the election of the tenant. The landlord granted a conveyance against payment of compensation. If the lease had more than 100 years to run, the rent and casualties were converted into feuduty. In other cases payment was also due in respect of the landlord's residual ownership.[34] The scheme appears to have been successful to some degree, although detailed figures are not available.[35] Certainly our survey suggests a decline in the number of long leases. The Guthrie Report disclosed that in 1951 a little under 3% of properties were held on long lease.[36] Today the figure is probably around 2%.[37] No doubt there were other factors at work as well. Some leases will simply have come to an end. In other cases, if rent had ceased to be paid, the tenant may have acquired ownership by recording an a non domino conveyance.[38] But conversion, whether under the 1954 Act or, after 1959, on an equivalent but voluntary basis, seems to have played an important role.
1.9 Other conversion schemes were, and remain, available on a more restricted basis.[39] A special scheme for tenancies-at-will was introduced in 1979.[40] There has been a right to buy houses leased from local authorities or other social landlords since 1980.[41] And the Crofters (Scotland) Act 1993 contains a conversion scheme for crofts. Conversion schemes also operate in the other jurisdictions of the United Kingdom. In England and Wales it has been possible to convert ultra-long leases since 1881.[42] The Leasehold Reform Act 1967 allows the conversion of leases of houses for more than 21 years on payment of compensation, a right extended to flats in 1993.[43] Northern Ireland has comparable legislation.[44]
Our recommendations in summary
1.10 We recommend that a conversion scheme be introduced for ultra-long leases. The scheme would follow closely the scheme for conversion of feus introduced by the 2000 Act. The scheme would be compulsory and automatic, but with the possibility of an opt-out by the tenant. A lease would qualify if it had been granted for more than 175 years and had more than 100 years left to run.[45] In practice, most qualifying leases will have been granted for much longer periods such as 999 years. On a specified day, to be known as the "appointed day", all ultra-long leases would be converted into ownership, and the residual ownership of the landlord would be extinguished.[46] Certain leasehold conditions could remain in force as real burdens. Conditions concerned with facilities and services would always survive, as would conditions imposed under a common scheme on a group of related properties. Other conditions could be preserved if the (former) landlord owned suitable land in the neighbourhood to which enforcement rights could be attached or if they were capable of being personal real burdens.[47] Special provision is made for servitudes.[48] Sporting rights could also be preserved.[49] The landlord would be entitled to compensation, calculated as a multiplier of the rent,[50] and in some cases additional compensation would also be due.[51] Conversion would be prevented if the tenant registered a notice of exemption before the appointed day, but the exemption could be recalled at any time provided the lease had more than 100 years to run.[52]
Which Parliament?
1.12 Legislation to give effect to our proposals would be within the legislative competence of the Scottish Parliament[53] (save for the proposal relating to the application of Stamp Duty Land Tax).[54] The law of landlord and tenant is not a reserved matter. Further, the legislation would not, in our view, be in breach of the European Convention on Human Rights. Indeed to a large extent our recommendations are modelled on existing legislation of the Scottish Parliament.[55]
Note 1 Scottish Law Commission, Report on Abolition of the Feudal System (Scot Law Com No 168, 1999). [Back] Note 2 Scottish Law Commission, Report on Real Burdens (Scot Law Com No 181, 2000). [Back] Note 3 Scottish Law Commission, Report on the Law of the Tenement (Scot Law Com No 162, 1998). [Back] Note 4 As part of our Seventh Programme of Law Reform (Scot Law Com No 198, 2005) we are reviewing the system of registration of title as set out in the Land Registration (Scotland) Act 1979. See our three discussion papers on land registration; Land Registration: Void and Voidable Titles (Scot Law Com DP No 125, 2004), Land Registration: Registration, Rectification and Indemnity (Scot Law Com DP No 128, 2005) and on Land Registration: Miscellaneous Issues (Scot Law Com DP No 130, 2005). In addition, we have received a reference in relation to the problems arising out of Sharp v Thomson 1997 SC(HL) 66. See our Discussion Paper on Sharp v Thomson (Scot Law Com DP No 114, 2001). [Back] Note 5 We have also reported on a reference received on the law of the foreshore and seabed. See ourReport on Law of the Foreshore and Seabed (Scot Law Com No 190, 2003). [Back] Note 6 Abolition of Feudal Tenure etc. (Scotland) Act 2000 ss 1 and 2. The day appointed for feudal abolition under s 71 of the 2000 Act was 28 November 2004, (Abolition of Feudal Tenure etc. (Scotland) Act 2000 (Commencement No 2) (Appointed Day) Order 2003, SSI 2003/456). [Back] Note 7 The subject of conversion of long leases was included within Item No 4: Property of our Sixth Programme of Law Reform (Scot Law Com No 176, 2000) paras 2.11 and 2.12 and was carried forward to our Seventh Programme of Law Reform (Scot Law Com No 198, 2005) paras 2.3–2.6. [Back] Note 8 Scottish Law Commission, Report on Leasehold Casualties (Scot Law Com No 165, 1998). [Back] Note 9 By s 5 the conditions are (i) that the lease was granted before 10 August 1914 and (ii) that the annual rent does not exceed £150. [Back] Note 10 Scottish Law Commission, Report on Irritancy in Leases of Land, (Scot Law Com No 191, 2003). [Back] Note 11 Scottish Law Commission, Discussion Paper on Conversion of Long Leases (Scot Law Com DP No 112, 2001). [Back] Note 12 A list of those who submitted written responses is in appendix B. [Back] Note 13 The members of our advisory group were Professor Stewart Brymer, University of Dundee and Thorntons WS; Mr Angus McAllister, University of Paisley; Mr Somerled Notley, Brodies WS; and Professor Robert Rennie, University of Glasgow and Harper Macleod. [Back] Note 14 We should particularly mention: Mr A M Bowman, Bonar Mackenzie WS; Mr J C N Craxton, Craxton & Grant; Mr Ian Davis, Registers of Scotland; Mr Fergus Ewing MSP; Fife Council; Mr A D D Forgan: Mr Andrew Fraser, North Ayrshire Council; Mr J D Grandison, Pomphreys; Mr Neil D Lambe, Office of Law Reform, Northern Ireland; McJerrrow & Stevenson; Mr Ian T Mackay, North Ayrshire Council; Mr Malcolm McRae, Highland Council; Ms Lynne Raeside, The Royal Institution of Chartered Surveyors in Scotland; Professor Peter Robson; Mr Peter Sharp, Murray & Tait; Mr Neil Tainsh, Clerk to the Lands Tribunal for Scotland; Mr S R Waters, Waters Rule & Co; Mr Robert Williamson; and Mr John Wright QC, Member of the Lands Tribunal for Scotland. [Back] Note 15 Report of the Scottish Leases Committee (Cmd 8656) (hereafter the "Guthrie Report") paras 37 and 38 and appendix II. [Back] Note 16 At present there are two property registers, the Register of Sasines and the Land Register, dating, respectively from 1617 and 1981. The Register of Sasines has now been phased out for new transactions although the two registers are likely to operate side by side for many years to come. [Back] Note 17 Registration of Leases (Scotland) Act 1857 s 1. [Back] Note 18 Land Registration (Scotland) Act 1979 s 3(3). [Back] Note 19 Hence the survey carried out for the Guthrie Committee was restricted to leases of over 31 years. [Back] Note 20 Land Tenure Reform (Scotland) Act 1974 sched 6 para 1. [Back] Note 21 Land Tenure Reform (Scotland) Act 1974 ss 8–10. [Back] Note 22 Abolition of Feudal Tenure etc. (Scotland) Act 2000 s 67. There are transitional exceptions, including for subleases. [Back] Note 23 Appendix C paras 11 and 12. [Back] Note 24 This obstacle disappeared in 1874 when burgage tenure was assimilated to feu farm tenure by s 25 of the Conveyancing (Scotland) Act 1874. [Back] Note 25 Such provisions were rendered ineffective by s 8 of the Conveyancing Amendment (Scotland) Act 1938. [Back] Note 26 Guthrie Report para 44. [Back] Note 27 Entail Amendment Act 1848 ss 4 and 24. [Back] Note 28 Entail (Scotland) Act 1914 s 4. [Back] Note 29 Appendix C para 16 and charts 9 and 10. [Back] Note 30 In England subinfeudation was abolished in 1290 by the statuteQuia Emptores. [Back] Note 31 For this reason ultra-long leases were sometimes referred to as "feu-tacks": see Buchanan's Trs v Pagan (1868) 7 M 1. [Back] Note 32 For a discussion of the relationship between feus and leases, see Martin Hogg, "Leases: Four Historical Portraits" in Kenneth Reid and Reinhard Zimmermann (eds), A History of Private Law in Scotland (2000) vol 1, pp 369–71. [Back] Note 33 Long Leases (Scotland) Act 1954 s 1. [Back] Note 34 Long Leases (Scotland) Act 1954 ss 7 and 8. [Back] Note 35 See, however, para 9.3. [Back] Note 36 Guthrie Report para 37. This figure is derived by disregarding the 3,224 leases which had expired. [Back] Note 37 Appendix C para 9. The ratio of ultra-long to "ordinary" leases appears to be roughly 2:1. [Back] Note 38 Guthrie Report paras 43–4. For a recent (and unsuccessful) example see B G Hamilton Ltd v Ready Mixed Concrete (Scotland) Ltd 1999 SLT 524. [Back] Note 39 For a summary account of the schemes mentioned in this paragraph, see Scot Law Com DP No 112 pp 95–8. [Back] Note 40 Land Registration (Scotland) Act 1979 ss 20–22. For tenancies-at-will, see paras 70–81 of the Guthrie Report. There are very few such tenancies. [Back] Note 41 The current legislation is the Housing (Scotland) Act 1987, as amended by the Housing (Scotland) Act 2001. [Back] Note 42 See now s 153 of the Law of Property Act 1925. [Back] Note 43 Leasehold Reform, Housing and Urban Development Act 1993. [Back] Note 44 Leasehold (Enlargement and Extension) Act (Northern Ireland) 1971; Ground Rents Act (Northern Ireland) 2001. [Back] Note 48 Paras 3.34–3.41. [Back] Note 50 As with the 2000 Act, the multiplier is derived by reference to the price of two and a half per cent Consolidated Stock. See paras 6.3–6.8. [Back] Note 51 Compensation is discussed in part 6. [Back] Note 53 Scotland Act 1998 s 29. [Back] Note 54 See paras 8.19–8.26. Taxes are a reserved matter, Scotland Act 1998, s 29, s 30, sched 5, part II, reservation A1. Other reserved matters are listed in sched 5. [Back] Note 55 Abolition of Feudal Tenure etc. (Scotland) Act 2000. [Back]
