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You are here: BAILII >> Databases >> Scottish Law Commission >> Scottish Law Commission (Reports) >> Conversion of Long Leases (Report) [2006] SLC 204(2) (December 2006) URL: http://www.bailii.org/scot/other/SLC/Report/2006/204(2).html Cite as: [2006] SLC 204(2) |
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PART 2: QUALIFYING LEASES
The case for conversion
2.2 Most ultra-long leases were granted for periods such as 999 years and have still many hundreds of years to run. This means that they are barely distinguishable from feus, and indeed were often granted as an alternative to feus, in circumstances where feuing was not possible.[1] A theoretical difference is that, while feus are perpetual, even an ultra-long lease will, eventually, come to an end by expiry of its term. But the prospect is so remote that the possibility can hardly enter into the consciousness of either landlord or tenant, and the landlord's ownership has rarely an economic value beyond the right to receive rent and, and also the benefit of any other terms that there may be. Almost always the reversionary interest itself is of minimal value.
2.3 An ultra-long lease suffers from many of the disadvantages already familiar from feus.[2] The hierarchical structure of leases and subleases is needlessly complex in circumstances where the only right of value is that held by the ultimate tenant. Yet a lease may be vulnerable to irritancy (ie unilateral termination by the landlord, without compensation) in the event of non-payment of rent or a failure to observe one of the conditions of the lease.[3] The conditions themselves may verge on the unacceptable. They allow an inappropriate degree of control by a person who, unless a close neighbour, has little or no interest in the land; or if actual control is eschewed they provide an opportunity to charge money for waivers. This can make the landlord's interest attractive to title raiders. It is true that conditions in leases can be discharged by the Lands Tribunal on cause shown[4] as was the case with feudal real burdens. But a condition in a lease has a nuisance value even if it would in all probability be discharged by the Tribunal. In practice the tenant may prefer to pay for a waiver than to risk the uncertainty, and delay, involved in a judicial process. Sometimes the landlord is untraceable, as occured also with feudal superiors.
2.4 In the case of feus, these disadvantages were considered sufficient grounds for conversion into proper ownership. That conversion was effected by the 2000 Act on 28 November 2004,[5] following on a report by this Commission.[6] The reform of land tenure would be incomplete, it may be argued, without the conversion of ultra-long leases. A pseudo-feu should be treated in the same way as the real thing.
2.5 In fact the difficulties with leases extend beyond those with feus. Because ultra-long leases are relatively rare, and are concentrated within small geographical areas, they are unfamiliar to many legal practitioners. The result is often an increase in transaction costs when the property comes to be sold. Several firms of solicitors complained to us of this difficulty. An agent for the purchaser who is unfamiliar with the type of holding is likely to ask inappropriate questions and to seek assurances on matters on which assurance is either not required or could not reasonably be obtained. Worse than this, a contract to buy a house or land expressed in standard terms does not cover the possibility that the title might be held on long lease. This means that, unless the terms have been appropriately adjusted, a purchaser can refuse to proceed with the transaction on the basis that the title offered is merely one of lease. Such cases occur, and have been litigated.[7]
2.6 A tenant under a long lease may also encounter difficulties in relation to secured financing. A small number of lenders will not advance money on the security of a lease.[8] Others are wary of potential problems, such as premature termination as a result of irritancy or of confusion.[9] Renewable leases are particularly troublesome. Although a 99-year perpetually renewable lease with 10 years to run may seem to the tenant like a perpetual lease, it may seem like a 10-year lease to the lender. This is because the lender will have to depend on the tenant renewing the lease on time and, following renewal, re-granting the security over the new lease. Meanwhile the lender is exposed to dangers such as the bankruptcy of the tenant, an inhibition preventing the re-grant, or a supervening security with a preferential ranking.
2.7 There are special difficulties with flatted properties. The common law of the tenement presupposes ownership rather than ultra-long lease. Yet tenements exist in which each flat is held under such a lease. In that case there is no clear applicable law, although in practice the law of the tenement is probably applied by analogy. In our Report on the Law of the Tenement we noted that we had "considered whether we should formalise the position by extending our proposals to flats which are held on exceptionally long leases but concluded that the issue is best approached as part of our long-term project on leasehold tenure".[10] Accordingly, neither the draft Tenements (Scotland) Bill included in the Report or the Tenements (Scotland) Act 2004 makes provision for ultra long leases. The problem is solved if, as envisaged in the Report, such leases are converted into ownership.
2.9 The 2000 Act[11] makes a distinction between "proper" leases and leases which are so long as to amount to quasi-ownership. The line is drawn at 175 years. Since 9 June 2000, when the relevant provision came into force, it has ceased to be possible to grant leases with a duration in excess of 175 years.[12] It would be consistent with the rule for new leases if existing leases which amount to quasi-ownership were now to be converted into proper ownership. Further, the 175-year limit will bring to a premature end those leases which are ultra-long only because they make provision for renewals. Two further renewals are permitted under the Act, but thereafter the lease cannot be renewed in such a way that it lasts for more than 175 years.[13]
2.11 Finally, the case against conversion is weak. Although conversion involves an interference with contractual relations, it should be borne in mind that in almost all cases the current landlord and tenant are not the original contracting parties. Nor could it be said that conversion will confer a windfall benefit on one party at the expense of the other. So far as the tenant is concerned, the conversion operates only at a technical level. It brings the law into line with reality. But the economic value of his asset is likely to remain unchanged. Landlords who suffer loss - in practice usually loss of the income stream from payment of rent - will be compensated.[14]
2.12 These arguments, we suggested in the discussion paper, amount to a strong case for conversion of ultra-long leases.[15] Almost all consultees agreed. Only the Royal Institution of Chartered Surveyors in Scotland opposed the principle of conversion, arguing that consistency with the 175-year limit on new leases contained in the 2000 Act was better achieved by reducing the length of all existing leases to 175 years. There would also be practical advantages:
"Such a proposal will obviate the need for the complex notice procedures, exemption clauses, etc and, importantly, converting ultra-long leases to 175 years would, in our view, not require compensation, as the difference in value between 175 years and 999 years would be negligible."
Nonetheless we doubt whether a tenant who holds on a 999-year lease with an unexpired duration of 893 years would regard it as acceptable for the duration to be reduced to 175 years, with or without compensation. A quasi owner will not wish to be downgraded to a mere tenant. We do not consider this proposal further, but instead recommend that
1. The right of a tenant under an ultra-long lease should be converted into a right of ownership, and the right of the landlord should correspondingly be extinguished.
(Draft Bill s 3)
Qualifying duration
2.13 Initial term. A lease should qualify for conversion only if its duration is so long as to amount virtually to ownership. Leases shorter than this have a valuable role to play in the property market and are not touched by our proposed reform. Thus nothing in our proposals will affect the 25-year commercial lease or the 60-year PFI/PPP lease[16] or the 99-year ground lease.
2.14 Our survey of leases suggests a clear dividing line between ordinary long leases on the one hand and leases which amount to virtual ownership on the other. If our figures can be relied on, most leases have been granted either for around 999 years or for 125 years or less. There is little in between.[17] As many as half of the leases (1269) revealed by our search of the Land Register were granted for exactly 999 years. Most of the others had a duration of 125 years or less. Of the ordinary leases, the typical lengths were 25, 60, 99 or 125 years, with the first being by far the most common. Our survey discloses only 2 leases in the range 126-175 years, and a further 21 in the range 175-299 years. The next cluster of leases does not occur until between 700 and 800 years.[18] On the basis of these figures, the dividing line between the two types of leases would seem to be 125 years. Indeed that was the durational limit originally included, on our recommendation, in the bill to abolish the feudal system. In the course of the bill's parliamentary passage, however, the limit was raised from 125 to 175 years, and as the law now stands it is competent to lease land for up to, but not beyond, 175 years.[19] This argues for 175 years as a convenient point of division. Certainly the qualifying period could not be lower than 175 years, for it would be illogical for a lease to be permitted by a recent act of parliament only to be converted into ownership by virtue of a later act. Our survey suggests that there would be little difference in practice between a limit of 125 years and one of 175 years. A threshold of 175 years would still admit two familiar types of residential long lease, namely leases for 99 years renewable once (making a total of 198 years) and leases for 19 years renewable 9 times (making a total of 190 years).
2.15 In the discussion paper we asked whether there should be a higher limit - 300 years for example - in the case of leases by local authorities or other public bodies.[20] We understand that local authority leases have occasionally been granted for periods of around 200 years. Unsurprisingly, this suggestion was welcomed by the local authorities among our consultees. Most other consultees, however, were sceptical or hostile. The Faculty of Advocates thought that the public interest was served by receipt of the price rather than by the expectation of a reversion more than 175 years later. Others doubted whether public bodies should be treated differently from private developers. It was also pointed out that the landlord's interest might pass into the private sector. We share these doubts and do not recommend a special rule for leases by public bodies.
2.16 Unexpired duration. There is also a second factor to be taken into account. As a lease begins to approach its close the line is crossed between quasi-ownership and mere lease. At that point conversion should cease to be possible, or at least not without payment of compensation for the landlord's reversionary interest. In the case of most of the leases with which we are concerned, this will not occur for many hundreds of years into the future. If an initial grant of more than 175 years is taken as the mark of an ultra-long lease, then there were 1781 such leases in our survey. Of those, 1531 (86%) had more than 700 years still to run, while a mere 43 (2%) were due to expire within the next 175 years (and none within the next 50).[21]
2.17 Nonetheless a minimum figure for unexpired duration seems required. Under the equivalent scheme in England and Wales, conversion is allowed of certain leases, without payment of compensation, provided that the unexpired term is not less than 200 years.[22] In Scotland an unexpired term of 100 years was the point at which conversion under the Long Leases (Scotland) Act 1954 could proceed without compensation.[23] The scheme currently operational in Northern Ireland requires only 50 years.[24] No doubt the differences are partly attributable to the difficulty of putting a value on the landlord's interest. In order to assist our understanding of this question, we asked the Royal Institution of Chartered Surveyors in Scotland for their view on the point at which the value of a landlord's interest in a long lease can be treated as negligible. In the course of a full and helpful response, it was suggested that the appropriate figure in most cases was an unexpired duration of 100 years.
2.18 Against this background, there seem to be two different ways of setting the criteria for conversion of long leases. One is simply to focus on unexpired duration, as in Northern Ireland. Given the terms of section 67 of the 2000 Act, the period could not be less than 175 years. The rule might therefore be that conversion is available in every case where, on a day to be fixed by statute, the unexpired portion of the lease is more than 175 years. In the discussion paper this was referred to as option A.[25]
2.19 The other way of approaching the issue would be to use a combination of initial term and unexpired duration. Initial term would be a means of separating quasi-ownership from genuine lease; and unexpired duration would be a means of ensuring that a tenant could not convert once the landlord's interest had acquired a significant value. A feature of this approach is that it allows a shorter period of unexpired duration. This is because the requirement of an initial term has already filtered out cases of genuine lease - and in particular the standard commercial ground lease. In the discussion paper we suggested for consideration that the initial term might be any period over 175 years coupled with an unexpired duration of more than 100 years. This second option was referred to as option B.[26]
2.20 These options operate to different effect only at the very margins. Almost all ultra-long leases would comfortably satisfy the criteria in either option and so would qualify for conversion. In order to bring out such differences as there are, we tested the options against our database of long leases. If option A were used, 1653 leases would qualify for conversion. Option B would bring in an additional 2.4% of leases - some 40 in all. Mainly these are residential leases. The reason that they fall within option B but not option A is that they have an unexpired duration of between 100 and 175 years. In the discussion paper we suggested that, if the effect of option B is to admit more residential leases but without at the same time drawing in ordinary commercial ground leases,[27] then it is probably to be preferred. Most consultees who expressed a view agreed with this conclusion.
2.21 We recommend that
2. A lease should qualify for conversion in respect of duration if it –
(i) was granted for more than 175 years, and
(ii) has an unexpired duration of more than 100 years.
(Draft Bill s 1(2)(b),(c))
Computation of duration
2.23 Renewals. Our survey disclosed examples of leases for an initial term of less than 175 years but with an obligation on the landlord to renew. Case law also gives examples.[28] Usually the landlord need renew only once, or on a stipulated number of occasions, but sometimes there is an obligation of perpetual renewal. An example of the latter is the so-called "Blairgowrie lease", which is a lease for 99 years perpetually renewable.[29] A grassum (premium) may be payable. The 2000 Act has now placed a cap on renewals. For leases executed on or after 9 June 2000 the total duration of a lease, including renewals, is restricted to 175 years.[30] For leases executed before that date two further renewals are permitted but thereafter a lease cannot be renewed in such a way that it lasts for more than 175 years. [31]
2.24 A renewal requires action on the part of the tenant. It is an option and not an automatic event. If the tenant fails to seek renewal, the lease either comes to an end or continues from year to year by tacit relocation. In either case the option to renew lapses.[32] Despite, or perhaps because of, these dangers, it seems likely that renewals are usually both requested and granted. If the landlord is unknown, or uncooperative, an application may be made to the sheriff for the renewal to be executed by the sheriff clerk.[33]
2.25 It seems clear that renewals - both actual and potential - should be included in the calculation of the duration of leases. To do otherwise would be to understate the probable length of the lease. Renewals were included in the computation of duration for the 1954 conversion scheme and, much more recently, in both the 2000 Act and in the Leasehold Casualties (Scotland) Act 2001.[34] The latter provides, succinctly, that "where a lease includes provision (however expressed) requiring the landlord to renew the lease, the duration of any such renewed lease shall be added to the duration of the original lease". Consultees were in unanimous agreement with this approach.
2.27 Breaks. Break options are sometimes found in ultra-long leases. Invariably they are in the landlord's favour.[35] Quite often they cannot be exercised without payment to the tenant, generally of compensation for the value of buildings and other improvements.[36] A break exercisable only on payment is barely distinguishable from a right of redemption (or resumption), and the discussion in this section should be regarded as extending to such rights.[37]
2.28 If it is to be assumed that a tenant will always exercise a right to renew,[38] then it is hard to resist the parallel assumption that a landlord will always exercise a right to break the lease. That, certainly, was the approach taken by the 1954 Act.[39] Break points which had already passed were ignored, but the lease was treated as coming to an end at the first break point occurring after the legislation. Since break points occur at relatively short intervals, the effect of this approach would be to remove from our conversion scheme many leases with breaks.[40] On further consideration, this approach seems unduly penal. As one consultee pointed out,[41] landlords are not as active as tenants. In ultra-long leases a landlord may be moribund or even untraceable. It would be wrong to exclude a lease if the break option would not in practice be exercised. The problem is avoided if breaks are taken account of only in relation to compensation. In the computation of duration, breaks would be disregarded; but the existence of a break provision would be a specific ground on which compensation could be sought.[42] Only active landlords would then take benefit.
2.29 Leases for life. Four of the leases in our survey were for the life of the first tenant plus a further period of years, the further period being either 361 years or, in one case, 741 years. No doubt such leases are extremely rare. Further, if our sample is typical, the leases so obviously qualify for conversion that it would not be necessary to make a precise calculation of the lifetime of the tenant. Nonetheless, a cautious view would be that it is necessary to make provision for how such a calculation might be attempted. The 1954 Act contains such a provision.[43] Except where there is information to the contrary, a lease for the lifetime of a person is treated as a lease for 35 years. This assumes, not a life expectancy of 35 years, but that a person might be expected to have been tenant for that period.[44] If, however, the tenant is currently in life, a calculation is made of life expectancy on the basis of a table set out in a schedule to the Act. We suggest that this approach be adopted, but with the substitution of a current table of life expectancy.[45]
2.30 Recommendation. Our recommendation is that
3. For the purposes of determining the duration of a lease -
(a) there should be included
(i) any renewal period which the landlord is bound to grant, and
(ii) the duration of any other lease which is to run consecutively with the current lease;
(b) any provision enabling the lease to be terminated early should be disregarded; and
(c) any reference to the lifetime of a tenant should be calculated as –
(i) the years during which the person survived after first becoming tenant, if known, or
(ii) if the tenant is alive, the years for which the person is likely to be tenant, having regard to a statutory table of life expectancy, or
(iii) in any other case, 35 years.
(Draft Bill s 60(1)(a)–(d))
Lease as a registered real right
2.31 It goes almost without saying that the lease must have been constituted as a real right. The idea of conversion is to transform one real right (lease) into another real right (ownership). There can be no question of upgrading a right which is merely contractual in nature. Further, in order to allow automatic conversion, it is necesssary that the real right be created by registration and not merely by possession.[46] Only registered leases, therefore, are to qualify for initial conversion, although separate provision is made later for unregistered leases.[47] The requirement of a registration applies only to the lease as originally granted, and it would be no bar to conversion that its current holder has not completed title.[48] We recommend that
4. A lease should qualify for conversion only if it is constituted as a registered real right.
(Draft Bill s 1(2)(a))
Exempt leases
2.33 Type of property. The 1954 Act scheme was directed at leases of houses rather than at leases which were ultra-long, although many of the leases converted would also have fallen into the ultra-long category. Non-residential leases were excluded from the 1954 Act.[49] By contrast, the English scheme for ultra-long leases makes no distinction by type of property. We do not propose such a distinction. In particular we do not suggest that leases of commercial property be excluded. If, for example, a tenement is built on land held on an ultra-long lease, it does not seem reasonable, or indeed practicable, that the shops on the ground floor should be treated in a different way from the flats above. Or again there seems no reason for excluding a 999-year lease of a factory or pub granted in 1891[50] if a lease of a house for the same period would be converted.[51] The basic principle should be universal convertibility. Two possible exceptions are canvassed below.
2.34 Minerals. Usually leases have the effect of separating entitlement to the surface of land from entitlement to the minerals beneath it. For on the one hand minerals are impliedly reserved from leases of land; and on the other, leases of minerals alone are quite common. The first of these is discussed elsewhere in this report,[52] and our concern here is only with the second.
2.35 Most mineral leases are too short to qualify for conversion, although we understand that ultra-long leases have sometimes been granted by the Coal Authority. In a mineral lease the tenant is entitled, indeed is expected, to use up the subjects of let; and when he does so, by extraction, the minerals become his property instead of the property of the landlord. Thus the lease operates much as a sale of the minerals. This makes mineral leases unlike leases of other types of property. It also argues for their exemption from conversion.[53] For if the agreement is that a tenant is to become owner by extraction, it is difficult to see any advantage in conferring ownership at an earlier date. Indeed there may be disadvantage because the tenant would have to pay compensation now for minerals which he might choose not to extract, or which might turn out to be incapable of economic extraction. There is also the practical difficulty of calculating compensation. In part 6 we recommend that compensation be calculated, in the usual case, as a multiplier of the annual rent.[54] But in a mineral lease the rent is typically a royalty based on the tonnage extracted and so is both unpredictable and subject to fluctuation from year to year.[55] It is difficult to see how a satisfactory average figure could be arrived at. Exemption of minerals would be consistent with the preservation in the 2000 Act of royalty arrangements for mines of gold and silver.[56]
2.36 Inalienable property. Some property which can be leased is not capable of being transferred outright. This is either because of the nature of the property itself or because of some limitation of power affecting the landlord. Possibly the only examples of the first category are shootings and freshwater fishings.[57] Both can be leased[58] but neither is a separate tenement capable of being owned separately from the land (or river). By contrast, the right to fish for salmon is a separate tenement and may be alienated as well as leased.[59] Leases of property inalienable in this sense are necessarily excluded from conversion.[60]
2.37 The position is different if inalienability is attributable merely to a lack of power in the owner/landlord. Here the property is capable of alienation, but not by its current owner. A further distinction requires to be made between a restriction of power which rests on obligation and one which is attributable to a lack of capacity.[61] The former has no effect even on voluntary transfer. So property is not inalienable merely because its owner has agreed with a third party that it should not be sold. A sale would be legally effective, although the seller would be liable for breach of contract.[62] Similarly, trustees are always able to sell trust property even where this would be in breach of trust. If obligational restrictions have no effect on voluntary sale, there is no reason why they should prevent conversion under our scheme. This is true even of rights of pre-emption. While, however, conversion would not be prevented by a pre-emption,[63] the pre-emption (if constituted as a real burden) would continue to affect the property in the hands of the tenant-acquirer and would take effect at the first post-conversion sale.
2.38 A restriction of power attributable to lack of capacity is a different matter. Without capacity there can be no transfer, and a purported transfer would be void - subject to the special rule that validates all entries made on the Land Register.[64] Here, however, the scheme need not be as exacting as the law on voluntary transfer. At least as a general rule, lack of capacity on the part of the landlord should not have the effect of preventing conversion of a lease into ownership. Thus conversion should not be defeated merely because, on the relevant day, the landlord happened to be incapax or happened to be a body corporate without capacity to alienate land. And on a practical level, the Keeper could hardly be expected to make inquiries, in respect of all qualifying leases on the Land Register, as to the legal capacity of the landlord on that day. In the discussion paper[65] we suggested that a special rule might be required for the National Trust for Scotland, which, while given general powers of alienation, is unable to alienate a building which is held for the express purpose of preservation.[66] However, we understand that the National Trust has not granted any lease for the qualifying duration. No other examples requiring exemption were brought to our attention.
2.40 Date of lease. The 1954 Act scheme applied only to leases granted before 10 August 1914.[67] This was apparently on the basis that 1914 marked the removal of the final restrictions on subinfeudation. From that point on, or so it was argued, the use of a lease must be seen as a matter of choice and not merely as a substitute for the feu which was not available.[68] We see no reason for perpetuating this restriction. Even before 1914 there must have been many leases which were granted by preference and not merely by default; and our survey shows that ultra-long leases continued to be granted on a regular basis even after 1914. Further, it should not be assumed that the preference for leases was always shared by the tenant. A person acquiring land may have to take it in the form that it is offered, or not take it at all. There may possibly be an argument that very recent leases ought not to be converted into ownership, at least where the original parties are still in place, but we do not support a restriction even in a case such as this. If a date restriction were to be introduced it would be necessary to decide whether it applied only to the original head lease or to later subleases also. The 1954 Act restriction is confined to head leases, and a restriction which encompassed subleases would be likely to produce random results.
2.41 Rent. The equivalent scheme in England and Wales is confined to ultra-long leases "without any rent, or merely with a peppercorn rent or other rent having no money value".[69] This may be one reason why the scheme - in existence now for over 120 years - has been little used. Our survey suggests that, for leases likely to be covered by our own proposed scheme, the rent is usually very small.[70] Of 1705 leases in our sample with a known rent and with a duration of more than 175 years, a mere 19 (1.1%) had an annual rent of more than £100, and only a further 7 (0.4%) had a rent of more than £50. More than two thirds (1160) had a rent of less than £5. As a broad generalisation, more recent leases tended to have higher rents. The highest rent of all, £5,000, was for a 999-year lease granted in 1978. But small rents were often found in modern leases also, such as the rent of £1 for a 999-year lease granted in 1996.
2.42 We do not think that a high rent should be a bar to conversion. So long as the landlord is fairly compensated for the loss of income, it should not matter whether the rent is high or low. Indeed with high rents the difficulty is more one for the tenant than for the landlord. A tenant may be unwilling, or unable, to pay the capitalised value of an annual rent of several thousand pounds. Later we suggest that a tenant who does not wish to pay should be able to opt out of the conversion scheme and continue with his lease.[71]
2.43 Existing conversion schemes. A number of other conversion schemes are already on the statute book.[72] Tenants of council and other public sector housing have a right to buy their house on payment of a discounted sum.[73] Crofters can buy their crofts.[74] And a person holding under a tenancy-at-will can become owner on payment of limited compensation.[75] There seems no reason why two schemes should not run in parallel, with the result that a person who qualifies under both would have a choice of schemes. We do not suggest, therefore, that qualification under an existing scheme should be a bar from qualification under the new scheme. As it happens, however, the existing schemes do not usually apply to ultra-long leases of the kind which will be covered by the new scheme. A crofting lease was traditionally a lease from year to year,[76] while a tenancy of public sector housing may be of even shorter duration. The term "tenancies-at-will" covers a range of customary holdings which almost defy satisfactory definition,[77] and whether a particular tenancy satisfies the requirements of the new scheme would need to be determined on a case-by-case basis.
2.44 Recommendation. We now draw the discussion together in the form of a recommendation that
5. A lease should not qualify for conversion if it is –
(a) a lease of minerals; or
(b) a lease –
(i) of land or a right in land which, by its nature, cannot be owned separately from other land, and
(ii) the lease does not include that other land.
(Draft Bill s 1(2), s 68(1))
Leases and subleases
2.45 If land has been sublet, the sublease too might fulfil the criteria for conversion, that is, it might also be a lease for more than 175 years with an unexpired duration of more than 100 years. Indeed there might have been further subleases, resulting in a leasehold chain in which each constituent lease is of the requisite duration. Only one tenant, however, can become owner, and hence only one lease out of a chain can qualify for conversion. The choice is not difficult to make. All leases, other than the last, are reversions which must await the expiry of the lowest lease in the chain.[78] By definition, that expiry could not occur for 100 years and in most cases would not occur for a much longer period. The reversionary interest of an intermediate landlord, in other words, is barely distinguishable from that of the head landlord and owner, and no more valuable. On consultation, there was no dissent from the view that, where more than one lease fulfils the criteria as to duration, the qualifying lease should be the lowest in the chain.[79] We recommend therefore that
6. Where, in the case of any land, more than one lease satisfies the criteria set out in recommendations 2–5, the qualifying lease should be whichever is the sublease of the other or others.
(Draft Bill s 2)
2.46 If the sublease affected part only of the land originally leased, the rule just described would be confined to that part, and the principal lease would be the qualifying lease for the remaining part. So if A, the owner of land, leases 10 hectares to B for 999 years and B in turn subleases 4 of those hectares to C for 920 years, C is the qualifying tenant in relation to the 4 hectares and B in relation to the remaining 6. If B had assigned rather than sublet, B and C would both hold as direct tenants of A under the same lease and there would be no hierarchy of leases. But the end result would be much the same, with C the qualifying tenant for 4 hectares and B for 6. Indeed, for the purposes of conversion, a lease which is divided by partial assignation is treated as two independent leases.[80]
Note 2 For which see Scot Law Com No 168 paras 1.16–1.19. [Back] Note 3 Irritancy is abolished by the Leasehold Casualties (Scotland) Act 2001 ss 5 and 6 in respect of leases granted before 10 August 1914 for not less than 175 years and at a rent not exceeding £150. [Back] Note 4 Title Conditions (Scotland) Act 2003 s 90(1)(a). [Back] Note 5 Abolition of Feudal Tenure etc. (Scotland) Act 2000 ss 1 and 71 and Abolition of Feudal Tenure etc. (Scotland) Act 2000 (Commencement No 2) (Appointed Day) Order 2003, SSI 2003/456. [Back] Note 6 Scot Law Com No 168. [Back] Note 7 McConnell v Chassels (1903) 10 SLT 790; Fleming v Boswell (Outer House, Nov 1948, unreported but noted at para 48 of the Guthrie Report). [Back] Note 8 The Council of Mortgage Lenders' Handbook for Scotland (2004) suggests that eleven lenders might come into this category, others required that specific reference be made to them. [Back] Note 9 "Confusion" in this technical sense occurs where the same person is both landlord and tenant. [Back] Note 10 Scot Law Com No 162 para 4.7. [Back] Note 11 ie the Abolition of Feudal Tenure etc. (Scotland) Act 2000. [Back] Note 12 2000 Act s 67. There are some exceptions. [Back] Note 13 2000 Act s 67(4)(a), (b). [Back] Note 15 Scot Law Com DP No 112 paras 2.2–2.12. [Back] Note 16 For which see Anne Ferguson and Liz Scobbie, "Property Aspects of PFI transactions" (2000) 44 Greens Property Law Bulletin 1. [Back] Note 17 Appendix C paras 11 and 12. [Back] Note 18 Appendix C chart 3. [Back] Note 20 Scot Law Com DP No 112 para 2.23. [Back] Note 21 Appendix C para 14. The total excludes the small number of leases for which the unexpired duration is not known. [Back] Note 22 The current provision is s 153 of the Law of Property Act 1925 although based on an earlier provision of 1881. For a discussion, see Megarry & Wade, The Law of Real Property (6th edn by Charles Harpum, 2000) paras 14 178–14-181. [Back] Note 23 Long Leases (Scotland) Act 1954 ss 7 and 8. [Back] Note 24 Ground Rents Act (Northern Ireland) 2001 s 3(3), (4). [Back] Note 25 Scot Law Com DP No 112 para 2.17. [Back] Note 26 Scot Law Com DP No 112 para 2.18. [Back] Note 27 The policy of the law is to allow ordinary commercial ground leases, ie leases of up to 175 years. See 2000 Act s 67. [Back] Note 28 Wight v Earl of Hopetoun (1763) Mor 10,461; Scott v Straiton (1771) Mor 15,200; Campbell v McLean (1870) 8 M(HL) 40. [Back] Note 29 Special provision for such leases was made by s 1 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985, introducing a retrospective amendment to the Land Tenure Reform (Scotland) Act 1974 s 8(4)(ii). [Back] Note 30 2000 Act s 67(1), (2). There is an exception where the lease implemented an obligation entered into before 9 June 2000: s 67(4)(a). [Back] Note 31 2000 Act s 67(4)(a),(b). [Back] Note 32 Commercial Union Assurance Co Ltd 1964 SLT 62; Sea Breeze Properties Ltd v Bio-Medical Systems Ltd 1998 SLT 319 (tacit relocation). [Back] Note 33 Land Registration (Scotland) Act 1979 s 22A. [Back] Note 34 Long Leases (Scotland) Act 1954 s 18(1)(a); Abolition of Feudal Tenure etc. (Scotland) Act 2000 s 67(2); Leasehold Casualties (Scotland) Act 2001 s 10(2)(b). [Back] Note 35 If the break option were conceived in favour of the tenant, then, for the purposes of computation of duration, it should be assumed that it would not be exercised. [Back] Note 36 For a standard style see Encyclopaedia of Scottish Legal Styles vol 6 (1937) pp 211–4. [Back] Note 37 The main difference is that, whereas a break occurs at a stipulated time, a redemption can often be exercised at will. [Back] Note 39 Long Leases (Scotland) Act 1954 s 18(1)(c). [Back] Note 40 This is because the scheme requires an unexpired duration of more than 100 years: see para 2.17. [Back] Note 41 Mr Angus McAllister (a member of our advisory group on leasehold conversion). [Back] Note 42 Paras 6.34 and 6.35. [Back] Note 43 Long Leases (Scotland) Act 1954 s 18(1)(b). [Back] Note 44 There seems no reason to change the 35 year period. The target is the same, namely leases of an older vintage where information is not available. If there are more recent examples of such leases it will be easier to find the relevant information. [Back] Note 45 Draft bill s 60 (1)(c) sched 20. We are grateful to the Government Actuary's Department for their advice and assistance in the preparation of this table. It is based on the format of the table set out in the 1954 Act. It shows, for 5-year age groups, the expectations of life for the youngest age in the age group based on mortality rates taken from the Interim Life Table for Scotland 2002 - 2004 prepared by the Government Actuary's Department for the Registrar General for Scotland. The Interim Life Tables are updated annually formerly by the Government's Actuary's Department but now by the Office of National Statistics. [Back] Note 47 Paras 8.14–8.18. [Back] Note 48 This is the same rule as applies to the conversion of the right of dominium utile under s 2(1) of the 2000 Act. [Back] Note 49 Long Leases (Scotland) Act 1954 s 1(1). [Back] Note 50 As in the lease litigated in B G Hamilton Ltd v Ready Mixed Concrete (Scotland) Ltd 1999 SLT 524. [Back] Note 51 Such a lease is far from being an "ordinary" commercial ground lease (for which see note 27). [Back] Note 53 In the discussion paper, however, our preliminary view was that mineral leases should not be exempted: see Scot Law Com DP No 112 para 2.35. [Back] Note 55 Robert Rennie, Minerals and the Law in Scotland (2001) pp 110–1 and 122–6. [Back] Note 56 2000 Act s 61, discussed in Scot Law Com No 168 para 3.56. [Back] Note 57 See generally, Rankine, Leases pp 501–07; Paton & Cameron, Landlord and Tenant pp 78–84. [Back] Note 58 Salmon and Freshwater Fisheries (Consolidation)(Scotland) Act 2003 s 66; Palmer's Trs v Brown 1989 SLT 128. [Back] Note 59 For separate tenements, see Reid, Property paras 207–13. [Back] Note 60 In part 5, however, a different rule is suggested in respect of reservations. [Back] Note 61 Reid, Property para 599. [Back] Note 62 In addition, if the purchaser was in bad faith, the transfer would be reducible by the creditor in the obligation on basis of the "offside goals" rule. See eg Rodger (Builders) Ltd v Fawdry 1950 SC 483. [Back] Note 63 This is the solution reached in the conversion scheme for tenancies-at-will: see Land Registration (Scotland) Act 1979 s 21(9). And see also Ross & Cromarty District Council v Patience 1997 SC(HL) 46. In any event, a conversion of the kind proposed could not be characterised as a sale and so would not trigger the pre-emption. Note that the pre-emption here affects the title of the landlord and not that of the tenant. [Back] Note 64 Land Registration (Scotland) Act 1979 s 3(1). [Back] Note 65 Scot Law Com DP No 112 para 2.33. [Back] Note 66 National Trust for Scotland Order Confirmation Act 1947 (c xxxviii) s 4(1). [Back] Note 67 Long Leases (Scotland) Act 1954 s 1(1). [Back] Note 68 Guthrie Report para 68(2)(i). [Back] Note 69 See now s 153(1) of the Law of Property Act 1925. By s 153(4), however, rent not exceeding £1 is extinguished if it has not been paid for 20 years. The lease then becomes convertible. [Back] Note 70 Appendix C para 17. [Back] Note 72 For a summary account of the schemes mentioned in this paragraph, see Scot Law Com DP No 112 pp 95–8. [Back] Note 73 Housing (Scotland) Act 1987 part III as amended by the Housing (Scotland) Act 2001 ss 42–52, s 112, sched 10. [Back] Note 74 Crofters (Scotland) Act 1993 ss 12–19. To this the Land Reform (Scotland) Act 2003, part 3 adds a community right to buy croft land. [Back] Note 75 Land Registration (Scotland) Act 1979 ss 20–22. [Back] Note 76 Hence the original definition of "crofter" in s 34 of the Crofters Holdings (Scotland) Act 1886. [Back] Note 77 Maclean v Kershaw 1993 SLCR 145. The definition for the purposes of the statutory conversion scheme is contained in s 20(8) of the 1979 Act. The fullest treatment of tenancies-at-will is that contained in the Guthrie Report at paras 70–81. [Back] Note 78 There may be further subleases in the chain which do not qualify for conversion. These will remain unaffected. [Back] Note 79 Similarly, in feudal conversion it is only the dominium utile that is converted into full ownership. See 2000 Act s 2. [Back]
