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You are here: BAILII >> Databases >> Scottish Law Commission >> Scottish Law Commission (Reports) >> Conversion of Long Leases (Report) [2006] SLC 204(6) (December 2006)
URL: http://www.bailii.org/scot/other/SLC/Report/2006/204(6).html
Cite as: [2006] SLC 204(6)
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PART 6: COMPENSATION
Introduction
6.1 Conversion presupposes compensation. If the tenant is to become owner, the landlord is due a payment to reflect the rights that have been lost. The main value of a landlord's interest lies in the right to receive rent. Almost always, in the case of an ultra-long lease, there is no other value. This suggests that compensation should be measured by the capitalised value of rent. In both this report and the draft bill, compensation calculated in this way is referred to as a "compensatory payment".[1] Very occasionally a compensatory payment might not be enough. In unusual cases the landlord's reversionary interest may turn out to have a value over and above the entitlement to rent. Or additional payments may be provided for under the lease, such as premiums for granting a renewal, or increased rent following a rent review. Or again the lease may contain conditions designed to reserve development value. For such exceptional cases a further payment - an "additional payment" in the words of the report and bill - is needed.[2]
6.2 For consistency, and ease of use, the mechanics of payment should follow the rules set out in the 2000 Act in the context of feuduty.[3] This means that both the compensatory payment and any additional payment would be collected by a notice served by the (former) landlord on the (former) tenant during the first two years after the appointed day.[4] If the amount claimed was £50 or more the former tenant would have the option of paying by instalments, but the balance would fall due immediately in the event that the property was sold.[5] In a departure from the 2000 Act, a landlord whose claim exceeded £500 would require to serve a preliminary notice, before the appointed day, alerting the tenant to the amount claimed.[6] A tenant who considered the price too high could then have the lease exempted from conversion by registration of a notice of exemption.[7] Claims of this amount are likely to be rare, and notices of exemption rarer still.
Compensatory payment
6.3 Basis of calculation. As already mentioned, the compensatory payment would be calculated by reference to the annual rent. In practice most rents are likely to be small - according to our survey, less than £5 in around two thirds of all qualifying leases.[8] The obvious model for compensation is the treatment of feuduty under the 2000 Act and earlier legislation.[9] Where feuduty was "redeemed" (ie extinguished by being bought out), the superior was entitled to be paid such sum as, if invested in two and a half per cent Consolidated Stock, would produce an annual sum equal to the feuduty. The idea was that the superior could exchange one investment for the other without disturbance to the income stream. If the case for conversion is that qualifying leases are quasi-feus, then there is obvious merit in applying to rent the rules which applied to feuduty.
6.4 As we pointed out in the discussion paper, it is possible to characterise the feuduty rules as unduly generous.[10] When the rules were first introduced, in 1974, the price of two and a half per cent Consolidated Stock resulted in a feuduty "factor" (ie the figure by which the annual feuduty required to be multiplied in order to arrive at the redemption sum) of 6.3. Since 1974 there has been a steady rise in the price of Consolidated Stock with the result that the feuduty factor for the purposes of the 2000 Act was 21.40. In 1974 a feuduty of £5 could be redeemed for £31.50. Under the 2000 Act the compensatory payment for the extinction of the same feuduty was £107. Applying the feuduty model to a rent the factor would today be around 24 and the compensatory payment around £120. This suggests that the price of Consolidated Stock may no longer be a reliable measure of compensation. Admittedly it was re-used as recently as the 2000 Act, albeit in a context where consistency was required with the 1974 Act provisions. Further, the redemption formula has the merit of representing the cost of an asset which generates income at the same rate as the income which is being lost. The rise in the cost is simply a reflection of the fall in interest rates. Nonetheless it seems plain that a multiplier of 24 or so is considerably greater than the (pre-feudal abolition) value of a bare superiority - or, it may be assumed, of a bare reversionary interest under a 999-year lease - in the market place. One reason for this is that the multiplier assumes a trouble-free investment, and so takes no account of the cost and difficulty of collecting small sums of money on a regular basis. In ultra-long leases rents may not be collected at all.
6.5 In the case of leasehold conversion there is no earlier model which need be treated as binding.[11] The scheme for conversion of leases which operates in Northern Ireland uses a fixed multiplier of 12.[12] That is close to the multiplier of 8-10 suggested for feuduty by the Royal Institution of Chartered Surveyors in Scotland in written evidence to the Justice and Home Affairs Committee of the Scottish Parliament at stage 1 of the Abolition of Feudal Tenure etc. (Scotland) Bill and repeated in response to our discussion paper.[13] Other consultees were more cautious, however, with a narrow majority supporting the adoption of two and a half per cent Consolidated Stock.
"[C]ircumstances will vary between leases to such an extent that a fixed multiplier would be wholly inappropriate. Leases by their nature are varied and may or may not incorporate rent reviews and other rights which have financial implications. For example, where there is provision for rent review, a much higher multiplier might be justified as ... the income will not be eroded by inflation. Other issues which should be taken into account include the effect on adjoining land in the same ownership, giving rise to severance claims or compensation for loss of value of access rights."
6.7 The inexorable conclusion is that separate valuation is needed in respect of each and every lease. We are not persuaded by this line of argument. Whatever the position may be with leases generally, those leases which were granted for 999 years or similar periods tend to be short and in standard terms. We have not encountered a lease with provision for rent review - no doubt in part because most ultra-long leases were granted long before rent review clauses became common.[14] And the duration of most of the leases under consideration means that few landlords can have been counting on the prospect of reversion. In a small number cases, of course, the position may be different, and a more nuanced approach desirable. We return to this subject later in the context of the additional payment.[15] But for the overwhelming majority of leases a fixed formula seems sufficient. And such a formula, it is hardly necessary to add, would be much simpler, quicker and cheaper to operate than a system which required that the landlord's interest be individually valued.
6.8 The question remains as to whether the formula should be based on two and a half per cent Consolidated Stock or on a fixed multiplier. With some hesitation, we have come to support the former. This is partly for consistency with the rules for feuduty, and in deference to the views of consultees. Partly too it is acknowledgement of the fact that in the, admittedly rare, cases where conversion takes place on a later date - either because the lease was not registered until shortly before or after the appointed day or because a notice of exemption was registered but subsequently recalled - a fixed multiplier would not be appropriate. But it is also because a more generous figure strikes a better balance between the interests of landlord and tenant. To give more than is strictly necessary is an acknowledgement that the landlord may have lost more than the right to rent. The compensatory payment should thus be seen as covering loss of the landlord's interest as a whole.[16] At the same time, however, the tenant is not unreasonably disadvantaged. On conversion the tenant's gain will exceed the landlord's loss, because the value of the landlord's interest to the tenant is greater than its value on the open market. That some of this "marriage value" should be shared with the landlord seems unexceptionable.[17] It should also be borne in mind that, almost always, the amount payable by the tenant will be small whatever formula is used. A rent of £5 or less - the typical figure - would generate a liability in the region of £120, even on the basis of two and a half per cent Consolidated Stock. In the rare case where substantial sums were claimed - more than £500 - our scheme would require prior notice by the landlord, giving the tenant the choice between paying the compensation or continuing with the tenancy.[18]
6.9 Non-monetary rents and royalty rents. The scheme presupposes a money rent. In around 1% of leases in our survey the rent, or part of the rent, was expressed in non-monetary form. This raises a valuation question which is best dealt with in the context of a claim for an additional payment. No compensatory payment will therefore be due if, or to the extent that, the rent is expressed in non-monetary form. Instead the landlord must claim an additional payment under rules considered later.[19]
6.10 In leases of minerals the rent is typically a royalty based on the tonnage extracted and so is both unpredictable and subject to fluctuation from year to year.[20] To find an average rent for the purposes of a compensation formula would be a challenging task which would risk random results. The difficulty is avoided by the proposal made earlier that mineral leases be excluded from conversion.[21]
6.11 Cumulo rent. Sometimes the original subjects of let have been divided, by assignation of a part. Our survey suggests that this may have occurred in more than half of all leases.[22] So far as the rent is concerned, there are then four broad possibilities. Either
(i) the rent has been apportioned among the leases by the landlord or with his express consent;
(ii) the rent has been apportioned by the tenants (whether in the assignation or subsequently)[23] and the apportionment tacitly accepted by the landlord;
(iii) the rent has been apportioned by the tenants without the consent of the landlord; or
(iv) there has been no apportionment of rent.
6.12 In the first case the amounts apportioned form the rent due in respect of each part of the subjects. This is the equivalent, for rent, of formal allocation in the context of feuduty. The second case appears to produce much the same result. The original initiative of the tenants is accepted, with greater or lesser reluctance, by the landlord. Almost always this is by acceptance of rent in accordance with the apportionments. Thereafter the landlord is personally barred from disputing the manner of division.[24] In the case of feuduty this would have been informal apportionment and not formal allocation, but the distinction is unknown for rent.[25] In the last two cases there is no accepted apportionment so that, by analogy with feuduty, a single rent remains due from the original subjects of let. There is, in other words, a cumulo rent, and the landlord is free to recover the full amount from any tenant of a part.
6.13 A cumulo rent needs to be allocated before the compensatory payment can be calculated. [26] Once again, the rules of the 2000 Act can be used.[27] Allocation is a matter for the landlord, and may be carried out in any reasonable manner. If the parts are of roughly the same size, equality would seem the obvious principle. Otherwise the landlord would need to have regard to relative area. Sometimes there will already have been an informal apportionment but which has not been accepted by the landlord.[28] The typical - and possibly the only - case is where the apportioned amounts are collected by a property manager or other third party and paid to the landlord as a single sum. The single payment disguises the apportionment and prevents the tacit approval of the landlord. Apportionments of this kind may be taken to be reasonable and should normally be followed by the landlord. Thus a landlord who discovers that payment of a single sum is not matched by the existence of a single tenant should make enquiries of the person making payment; and that person will be under a statutory duty to disclose all relevant information.[29]
6.14 The statutory form of notice[30] to be served by the landlord shows, not merely the amount claimed, but also the amount of rent allocated by him on the other parts of the same subjects of let. It would be a defence to an action of payment that the allocation is unreasonable. A landlord who allocates too little on some former tenants and too much on others runs the risk of a successful challenge, and a corresponding loss of compensation, for the tenants who were allocated too little would have no liability to make up the shortfall.[31]
6.15 Partially continuing leases. In most cases there will be no difficulty in ascertaining the annual rent by reference to which the compensatory payment is calculated. The lease in question will have been extinguished and the annual rent will be the sum due under the lease or, where the rent is a cumulo, the sum allocated by the landlord. In some cases however a lease may not be wholly extinguished on the appointed day.[32] Such a lease is termed a "partially continuing lease" in the draft bill.[33] Here the annual rent due under the lease should be allocated between the extinguished part of the lease, for the purpose of calculating the compensatory payment, and the continuing part, for the purpose of calculating the rent payable in the future.[34] As with a cumulo rent, allocation is a matter for the landlord and may be carried out in any reasonable manner. Where the rent due under the lease was also part of a cumulo rent two allocations are required. The first is of the cumulo rent and the second is of the sum allocated to the lease as part of the cumulo. The statutory form of notice[35] shows the amount claimed together with details of the allocation including any allocation of the cumulo.
6.16 Recommendation. We recommend that
28. (a) The compensatory payment for the extinction of the rights of a landlord under a lease should be such sum as, if invested in two and a half per cent Consolidated Stock on the day before the appointed day, would produce an annual sum equal to the annual rent due under the lease.
(b) If the rent payable under the lease is a cumulo amount extending to another lease or leases, the landlord should first allocate the rent among the leases in such proportions as are reasonable in the circumstances; and an allocation should be deemed reasonable if it follows an existing informal apportionment.
(c) Where the lease is a partially continuing lease the landlord should first allocate the rent, taking into account any allocation made under (b) above, between that part of the lease that is extinguished and that part of the lease that continues in such proportions as are reasonable in all the circumstances. The sum allocated to the part of the lease that is extinguished shall be the annual rent for the purposes of calculating the compensatory payment. The sum allocated to the part of the lease that continues shall be the rent due for that lease as from the appointed day.
(d) This recommendation does not apply if, or to the extent that, the rent under the lease is expressed other than in monetary terms.
(Draft Bill ss 32, 35, and 36)
Compensation due only where claimed
6.17 Under the 2000 Act the superior must ask for compensation. Otherwise none was due, and the feuduty was extinguished without payment.[36] The claim was made in the form of a prescribed notice, served on the vassal,[37] and specifying the amount due. This was accompanied by a prescribed note explaining the reason for the claim and the rules for payment. Consultees were generally content that this procedure be adapted for present purposes. Only two[38] argued that the debt should be due without notice and that it should be for the tenant to seek out the landlord. It may be added that the scheme proposed is fully consistent with the compensation rules in respect of leasehold casualties.[39]
6.19 In the discussion paper we suggested that the landlord's notice should be served before the appointed day and not after, as in the 2000 Act.[40] This was to facilitate exemption. As will be seen, a tenant disapplies the scheme by registering a notice of exemption, and naturally this must be done before the appointed day.[41] But in practice a tenant is unlikely to seek exemption unless significant compensation is being claimed. Requiring service before the appointed day was a means of allowing an informed choice; for if no notice was served, no compensation was being claimed and there was no need to seek exemption. The proposal had a number of disadvantages. It required that rent be redeemed before the appointed day, at a time when the lease was still in place. The person paying compensation might be different from the person who ultimately benefited from conversion. And if the lease was subsequently exempted from conversion, it would be necessary for the rent to be reinstated and arrears paid, and for the compensatory payment to be refunded. This affected not only the qualifying lease but superior leases as well.
6.20 We now propose to tackle the issue in a different way. A tenant is unlikely to seek exemption unless substantial sums are claimed. But in most cases the compensatory payment will be small or very small. If only small sums are being claimed, there is no reason to require service before the appointed day. Exceptional cases should not dictate the general rule. That rule should therefore be service after the appointed day, and with a cut-off point of two years, as in the 2000 Act. But if more than £500 is being claimed, the landlord must serve an additional notice before the appointed day. The details are considered later.[42] Only a small number of claims is likely to be affected by this requirement. The rules just described should apply, not only to compensatory payment, but to any additional payment as well.[43]
6.21 We recommend that
29. A compensatory payment or additional payment is due if and only if the former landlord serves on the former tenant, within two years of the appointed day
(i) a notice in the prescribed form setting out the amount due and how it has been calculated and, in the case of cumulo rent or a partially continuing lease, information as to how the rent has been allocated; and
(ii) an explanatory note in the prescribed form.
(Draft Bill ss 31(1)(4) and 39(1), (2), (4))
Renewal premiums
6.22 Earlier we recommended that a renewal which the landlord is bound to grant should be counted for the purposes of determining the duration of a lease, and hence the eligibility for conversion.[44] Sometimes, however, renewal is granted only against payment of money. For example, in the so-called Blairgowrie leases (leases for 99 years, perpetually renewable) it is provided that the landlord
"binds and obliges herself and her foresaids at the expiry of the foresaid period of ninety-nine years to renew this Subtack for the like period of ninety-nine years upon the tenants paying one year's rent in addition to the rent then due ..."
6.23 Where, as usually, the renewal premium (grassum) is tied to the ground rent, it is likely to be very small - less than £1 in the example quoted above. Occasionally the amount due is larger. We found one example in which payment was a full year's rental value "whatever that may happen to be".[45] With renewable leases the tenant will usually need to count at least one renewal in order to bring the unexpired duration to the qualifying level for the purposes of conversion, and occasionally more than one will be required. This suggests both that compensation should be given for the loss of such renewal premiums as are required to reach the qualifying level, but also - in view of the very small number of cases, and the derisory sums often involved - that the method of calculation need not be very sophisticated.
6.24 In the discussion paper we offered two alternative approaches.[46] One was to treat renewal premiums as an additional rent, spread evenly over the period of the lease. So a premium of £10 payable for renewal every 99 years would be treated as an additional rent of £0.10 a year. This figure could then be added to the rent for the purposes of calculating compensation in the manner already described. The other was to calculate, on a case-by-case basis, the current value of the right to receive the premium on the date on which it is due. The first method has the merit of simplicity, while achieving a certain amount of rough justice. It favours the tenant if the next renewal is expected shortly and the landlord if it is still a long way off. The second is more accurate but more cumbersome. In many cases the expense of agreeing the calculation would exceed the compensation due.
6.26 Allocation of premiums. In cases where there is a cumulo rent any premium is likely to be a "cumulo premium", that is a single premium payable under two or more leases. Such a premium should be allocated between the leases before compensation may be claimed. An allocation should be made by the landlord using the scheme, with the necessary modifications, for the allocation of a cumulo rent.[47] Similarly, a premium payable under a partially continuing lease should be allocated between the extinguished part and the continuing part of that lease.[48] If the amount of the premium allocated to a lease or part of a lease is £100 or less, the averaged annual amount should be added to the annual rent for the purposes of calculating the compensatory payment. If the amount allocated exceeds £100, compensation may only be claimed under the additional payment scheme set out below.[49]
6.27 We recommend that
30. (a) Where
(i) a lease contains an obligation on the landlord to renew the same from time to time at fixed periods and on payment of a premium not exceeding £100; and
(ii) the lease complies as to duration (including unexpired duration) with recommendation 2 only if it is renewed on one or more occasions;
the rent for the purposes of recommendation 28 should be deemed to be augmented by the amount of the premium divided by the number of years occurring between each renewal.
(b) For the purposes of calculating the amount of the premium under (a)(i) above or recommendation 31(d), where the premium is a cumulo premium or a premium payable under a partially continuing lease, the scheme for allocation of rent set out in recommendation 28(b) and (c) should apply with the necessary modifications.
(Draft Bill ss 33 and 38)
Additional payment: grounds
6.29 Non-monetary rents. A non-monetary rent could not be subject to the mechanical formula used for compensatory payment.[50] Instead separate valuation is required. Non-monetary rents were found in around 1% of the leases in our survey. For example, in one lease six fat hens formed part of the rent. Another supplemented a low monetary rent with four bolls of good and sufficient oat farm meal. In two leases the rent included providing the services of a labourer for three days to work on the roads in a particular town. In cases such as these the claim of the landlord should be for an additional payment, proceeding on a valuation of the right. If a monetary equivalent of the rent can be agreed,[51] the payment due would normally be derived by applying the formula for monetary rents based on the price of two and a half per cent Consolidated Stock.
6.30 Rent review. In ultra-long leases provision for rent review is rare but probably not unknown.[52] At any rate the possibility ought to be acknowledged. Hence if the level of rent is to be reviewed at regular intervals, the likely consequences of that review must be built into any calculation of compensation. Its value will depend on market conditions, on the frequency of the review, and on whether the rent has recently been reviewed.[53]
6.32 Renewal premiums exceeding £100. A renewal premium of £100 or less is to be averaged on an annual basis and treated as additional rent for the purposes of the compensatory payment.[54] Premiums in excess of this figure require more sophisticated treatment, and the same is true of premiums involving uncertain sums (such as premiums tied to rental value on a particular date). Only those renewals needed to raise the lease to the qualifying duration are relevant. Hence if a lease granted for 99 years but renewable for further periods of 99 years on payment of £1000 has, on the appointed day, 30 years still to run, a single renewal would be sufficient to achieve the qualifying level of a lease of 175 years with an unexpired duration of 100 years. The additional payment to the landlord would therefore be the value on the appointed day of a right to receive £1000 in 30 years time. Once an assumption is made as to rates of interest, this is a straightforward calculation.[55]
6.33 Residual value of reversionary interest. Occasionally the landlord's reversionary interest has a value over and above the income stream from rent. Whether this is so depends mainly on unexpired duration - on how long, in other words, the landlord must wait before repossessing the property. In a report prepared for our benefit, and for which we are grateful, the Royal Institution of Chartered Surveyors in Scotland suggested that 100 years was the crucial figure. In leases with a shorter unexpired duration the interest of the landlord might begin to acquire independent value, while for leases with more than 100 years to run no value could usually be attributed to the reversionary interest. The same threshold of 100 years was used in the 1954 Act for the purposes of assessing the need for compensation.[56] In the equivalent scheme for Northern Ireland the cut-off point is 50 years.[57] Under our proposals conversion will be available for any lease granted for more than 175 years and with an unexpired duration of more than 100 years.[58] Where a lease has an unexpired duration of around 100 years, the landlord's reversion may occasionally have a value in its own right. If so, an additional payment should be available for the landlord. A cut-off point seems necessary, however, if speculative claims are to be prevented. We suggest a figure of 200 years as sufficient to bring in any lease in which residual value might conceivably lie.[59] The numbers involved are small. Our survey found only 50 leases granted for more than 175 years and with an unexpired duration of less than 200 years - less than 3% of the total of ultra-long leases.[60] And of these small numbers there will be many instances in which the residual interest is valueless.
6.34 Early termination. Sometimes there is a right to bring the lease to an end before its normal expiry. This may be a break clause exercisable at regular intervals, or perhaps a right of redemption or resumption exercisable at the landlord's discretion. Under our scheme rights of this kind are disregarded in the calculation of duration. A lease for 200 years with breaks at 20-year intervals is treated as having a duration of 200 years and not 20.[61] But the right to terminate may itself be of value, at least if it can be exercised at will or within a reasonable period after the appointed day. In principle it should be capable of founding a claim for an additional payment. Its value may, however, turn out to be negligible if, as often, the right can be exercised only against payment.
6.35 An additional payment should be available only for rights within the full control of the landlord. A right to terminate on breach - irritancy or the equivalent - should not be included. Nor should a right of pre-emption. Pre-emptions are eligible for conversion into real burdens,[62] and the need to match a purchaser's price will usually deprive them of independent value.
6.36 Right to development value. It is possible that leases, like feus, were occasionally granted cheaply on the basis that the property was used for some limited purpose only, such as the building of a church or a community hall. If so, the restriction served to guard the donation. The tenant took the land cheap but subject to a right of limited use. The undervalue might affect either the rent or the grassum, although the generally very low level of rents may make the former difficult to detect at least at this distance in time. Depending on the circumstances it may be possible to convert a restriction of this kind into a real burden, under rules already considered.[63] Otherwise it will be extinguished with the lease on the appointed day. The issue then becomes one of compensation.
6.37 The nature of the loss is readily understood. For as long as the lease remained in place, the development potential of the land could not be released without a discharge of the restriction. A discharge might be obtained either by agreement or by order of the Lands Tribunal. In either case money would be expected to change hands.[64] In losing the right to enforce the restriction the landlord is losing the contingent chance of payment in the event that the tenant wishes to develop the land. The solution for feus, in the 2000 Act, was to allow compensation for any development occurring in the first twenty years after the appointed day, provided that the superior had registered an appropriate notice before that day.[65] The complex provisions giving effect to this idea are, however, over-elaborate for present purposes, and it seems sufficient to allow loss of development value as a head of claim for an additional payment.[66] Definitions may be borrowed from the 2000 Act, and later we suggest that the claim should be subject to a ceiling, as under that Act.[67]
6.38 Recommendation. We recommend that
31. A landlord should be entitled to an additional payment for any loss arising from the extinction on the appointed day of one or more of the following rights
(a) the right to a rent expressed in non-monetary terms;
(b) the right to a review of the rent;
(c) the right to an increase in the rent;
(d) the right to payment of a premium for renewal of the lease other than a premium mentioned in recommendation 30(a)(i), provided that the lease complies as to duration (including unexpired duration) with recommendation 2 only if it is renewed on one or more occasions;
(e) the right to the reversion of the lease at ish;
(f) the right to terminate the lease prior to the ish other than
(i) a right of pre-emption, and
(ii) a right of irritancy or other equivalent right; and
(g) the right to development value in circumstances where
(i) the lease was granted subject to a condition which reserved the development value of the lease, and
(ii) the rent or grassum for the lease was nominal in amount, or was significantly lower than if the lease had not been subject to the condition.
(Draft Bill s 40)
Additional payment: amount
6.39 Procedure. As already mentioned, a claim for payment is initiated by service of a notice on the tenant, and this must be done within two years of the appointed day.[68] The notice sets out the ground of claim, the amount claimed, and an explanation of how that amount has been calculated.[69] If more than £500 is sought, a preliminary notice must also have been sent before the appointed day.[70] A tenant who accepts the claim can pay either in a lump sum or by instalments.[71] Following the 2000 Act, a lump sum payment is due within eight weeks of service.[72] If, however, the tenant disputes the amount due - as may be common for claims based on a valuation - a period of negotiation will follow. If the original figure is rejected by the tenant, the landlord must send a second notice once a new figure is agreed.[73] A second notice is necessary to provide a starting point both for the instalment scheme, described later,[74] and for payment in a lump sum. If no election is made for instalments, the tenant would have to pay the full amount within four weeks of the second notice.[75] The matter can, if necessary, be referred to the Lands Tribunal, as under the 2000 Act[76] for an order fixing the additional payment.[77] In making an order the Lands Tribunal must, where appropriate, provide the former tenant with the option of paying by instalments in accordance with the instalment scheme set out in the bill.[78]
6.41 The first is whether the landlord has any other entitlement to recover in respect of the loss. Primarily this refers to the compensatory payment itself, which may often be sufficient to cover the loss, not only of rent, but of other rights as well.[79] But it also refers to any right to recover an additional payment on a different ground. If the loss is already provided for in some other way, no additional payment will be due.
6.42 The second is the extinction of the obligations of the landlord. From the landlord's point of view, leasehold conversion extinguishes obligations as well as rights. There are gains as well as losses.[80] To assess net loss it is necessary to set off any gains.
6.43 Valuation of reversionary interest. More may be said as to the valuation of the reversionary interest. Here the basic principle seems clear enough. The landlord's loss is represented by the value which the interest would have on the open market as between a seller and a buyer both of whom are willing, knowledgeable and prudent,[81] and on the basis that the lease will continue to its ish.[82] Following the RICS Appraisal and Valuation Standards (the "Red Book"), special sellers and special purchasers are both disregarded.[83] A special purchaser is one who will pay more for the property on account of its special value to him. In the present context such a purchaser would usually be the tenant under the lease,[84] for the value of the combined interests of landlord and tenant exceeds the sum of the values of each interest when held separately.[85] A special seller is one who also owns adjacent land the value of which may be affected by the severance and loss of the principal land.[86] In fact a decline in value is not to be expected in the present case.[87] If a lease has at least 100 years to run, the landlord is unlikely to have been counting on the use of the land. Moreover, our scheme allows the preservation, as servitudes or real burdens, of any rights over the leased land which are for the benefit of neighbouring land which the landlord happens to own.[88]
6.44 In most cases a substantial part of the value placed on the reversionary interest will be attributable to the rent, which is separately compensated through the (principal) compensatory payment.[89] To arrive at the additional payment, therefore, it will first be necessary to deduct the compensatory payment.[90]
6.45 Capping of claim for development value. If, under the present law, a leasehold condition preserving development value were discharged by the Lands Tribunal, any compensation would be limited to "a sum to make up for any effect which the title condition produced, at the time when it was created, in reducing the consideration then paid or payable for the burdened property".[91] The same limitation, it seems clear, should apply to the proposed additional payment for development value, as indeed it applies to the equivalent provisions in the 2000 Act.[92] On the basis of current Lands Tribunal practice, the limitation would disregard inflation.[93] This is justifiable on policy grounds, as a means of taking the age of the conditions into account.[94] For the older a condition, the more benefit the landlord has already received and hence the less need for compensation. Further the older the condition the more likely that the landlord's interest has changed hands since the lease was first granted. It would be unusual for the price paid for that interest - then or now - to be materially affected by the existence of the condition. In other words the value of the burden to the landlord will not have caused an increase in the value paid for the landlord's interest that will justify taking inflation into account. Also, if inflation is taken into account, the landlord will receive more than he would have been entitled to if there had been no discount.[95]
6.46 Date of valuation. The date of valuation should be the date of the loss, or in other words the appointed day. The same principle rules in respect of the compensatory payment.[96]`
6.47 Recommendation. We recommend that
32. (a) The additional payment in respect of the extinction of a right mentioned in recommendation 31 should be the amount agreed between the parties following service of the notice as provided in recommendation 29 or, failing agreement, the amount fixed by order of the Lands Tribunal.
(b) In assessing the additional payment account should be taken of
(i) the extinction, under recommendation 11, of the obligations of the landlord; and
(ii) the compensatory payment and any other entitlement of the landlord to recover in respect of the loss.
(c) Subject to (b), the additional payment in respect of a claim under recommendation 31(e) should be the value which the reversion would have on the open market as between a seller and buyer both of whom are willing, knowledgeable and prudent, on the assumption that the lease will continue to its ish, but disregarding
(i) possible bids by the tenant or other purchasers with a special interest; and
(ii) any depreciation in the value of other land owned by the landlord.
(d) The additional payment in respect of a claim under recommendation 31(g) should not exceed such sum as would make up for any effect which the condition produced, at the time when it was imposed, in reducing the consideration then paid or made payable for the lease.
(e) The rights lost should be valued as at the appointed day.
(Draft Bill ss 4144 )
Claims in excess of £500
6.48 Conversion is mandatory only for the landlord. A tenant who concludes that costs exceed benefits can opt out of conversion by registration of a notice of exemption not later than two months before the appointed day.[97] But exemption supposes foreknowledge. To make an informed choice the tenant must have some idea as to the amount of compensation that is likely to be required; and this information must be available before the appointed day. The only reasonable way in which information can be provided is by requiring the landlord to serve, before the appointed day, a preliminary notice giving an estimate of the compensation due.[98] This is in addition to the normal notice, served after the appointed day, which establishes the debt and results in payment.[99] In order to give the tenant a reasonable opportunity to take advice and, if necessary, to register a notice of exemption, the preliminary notice would require to be served well before the appointed day, and we suggest a period of six months.
6.49 In fact a preliminary notice would not be usually be necessary. It would not be necessary, for example, where compensation was being claimed from an intermediate tenant, because only the tenant under the qualifying lease is able to register a notice of exemption.[100] Nor would it be necessary where, as typically, the amount claimed was small, since it may be assumed that a small sum would always be an acceptable price for the acquisition of ownership. It is a difficult, and to some extent an arbitrary, decision as to when a sum ceases to be "small" for this purpose. A sum which is small to one person may seem large to another. The policy objective is to give fair notice to a tenant without at the same time imposing an unnecessary burden on the landlord. If the figure is set too low, the landlord will have the trouble and expense of serving a notice which is of little interest to the tenant. But if it is set too high the tenant might be faced with forced acquisition of the land at a price which he cannot afford. Balancing these considerations as best we can, we think that a threshold of £500 would be about right. The threshold would apply separately to compensatory payments and to additional payments. Hence a landlord could claim £450 in compensatory payment and a further £450 in an additional payment without having to serve a preliminary notice. But if an additional payment were claimed under more than one head, the heads would be aggregated. Except where a preliminary notice had been served a (former) landlord would be limited to £500 in any claim for compensatory payment or additional payment. In most cases, of course, the amounts involved would be much smaller.
6.50 As usual, the form of notice would be prescribed.[101] The notice must state the sum that is claimed or the best available estimate of that sum. Since the amount payable would depend on valuation as at the appointed day[102] - a day not yet arrived - the figure given is in practice likely to be an estimate. The landlord is not bound by this figure. After the appointed day he could claim either more or less. But if the estimate was unreasonable - if, for example, it was set unjustifiably high in the hope of persuading the tenant to opt out - the notice would be invalid and the landlord restricted to a claim of £500. Service[103] of the notice would be accompanied by an explanatory note, again in prescribed form, which would explain its status and the availability of exemption.
6.51 We recommend that
33. Any claim against the former tenant under a qualifying lease in respect of
(i) a compensatory payment, or
(ii) an additional payment
should be restricted, in each case, to a maximum of £500 unless, not later than six months before the appointed day, the person making the claim served on the tenant a notice giving warning of the prospective claim.
(Draft Bill s 45)
Intermediate leases
6.52 In most of the properties affected by the scheme there is only a single landlord and a single tenant.[104] Where intermediate leases exist, however, the position becomes more complicated. Take the case where A, the owner of land, leases to B for 999 years, who subleases to C for 900 years, who subleases to D for 899 years. Each tenant pays rent to his landlord. How is the compensation scheme to operate in such a case?
6.53 So far as the compensatory payment[105] is concerned, two possibilities seem available. One would be for each landlord to claim from D (the future owner) compensation calculated in respect of the "profit" rent only, ie of that part of the rent due to him which exceeds the rent due to his own landlord. So if B paid £10 to A but collected £15 from C, B's profit rent would be £5. The other possibility would be for each landlord to claim the full amount from his own immediate tenant, leaving it for that tenant to claim further down the line. Thus A would claim from B on the basis of a rent of £10, B from C on the basis of a rent of £15, and so on. A number of considerations suggest that this second solution is preferable. One is that it takes proper account of the fact that some of the intermediate rents may no longer be claimed. If B does not in practice pay to A, then B's real profit rent - and hence his real loss on redemption - is £15 and not £5. If he can only claim for £5, then - on the basis that A will not in fact make a claim - the subtenants will have got off too lightly. Another factor is the possible difficulty of identifying the qualifying subtenant. Occasionally, too, there may not be a profit rent at all. B may have sublet for less than he pays to A. In such a case the first solution would not be workable. Finally, there is the question of consistency with the 2000 Act, which allows intermediate superiors to claim in full from their immediate vassals.[106] Most consultees agreed that landlords should claim only from their immediate tenants.[107]
6.54 Sometimes the gain which corresponds to the landlord's loss is received, not by the immediate tenant, but by the tenant under the qualifying lease (D in the example). The essential distinction is between loss of rent and loss of other rights. The former is of benefit to the immediate tenant, in the sense that that tenant no longer has liability for rent. Hence any claim which is based on loss of rent may appropriately be made against the immediate tenant - a principle which covers not only compensatory payment, as already seen, but also those elements of a claim for additional payment which are concerned with rent.[108] The immediate tenant may then have a corresponding claim against the subtenant. The position is different in relation to the other rights for which an additional payment may be due.[109] If, for example, a landlord[110] claims for loss of the reversionary interest, the corresponding gain - ownership of the land - accrues only to the tenant under the qualifying lease. Hence it is against that person that the claim for additional payment should be directed.[111]
6.55 We recommend that
34. A claim for compensatory payment or additional payment should be made
(i) in the case of a claim under recommendation 31(e)(g), against the former tenant under the qualifying lease, and
(ii) in any other case, against the immediate former tenant of the person making the claim.
(Draft Bill ss 31(2) and 39(2), (3))
Crystallisation of liability
6.57 A difficulty, particularly in relation to the tenant, is that the interest may be in the course of changing hands. The tenant's interest under a lease is transferred by a written assignation, signed and delivered by the outgoing tenant, and registered in the Land Register by the acquirer.[112] Until registration the seller remains tenant, as a matter of strict law. But in practice the acquirer may already be in possession and paying rent. Completion of title, it should be emphasised, is beyond the control of the seller. If the acquirer delays registration, there is nothing that the seller can do; and an acquirer who wished to avoid paying compensation might delay registration until after the appointed day. This difficulty can be met - as it was met under the 2000 Act[113] - by defining "former tenant" as including a person who has right to the tenant's interest but has not completed title. The concept of "having right" to land is familiar from the legislation on deduction of title,[114] from the 2000 Act, and from the 2003 Act.[115] It signifies a person holding on an unregistered conveyance. An acquirer with a delivered assignation would be a "former tenant" under this definition despite the fact that the assignation had not been registered. If more than one person comes within the definition - as for example in cases with a sequence of unregistered assignees - the latest such person would be treated as the former tenant.[116] If the tenant died before the appointed day, liability would attach to his estate as a matter of general law.[117]
6.59 In some cases our proposals may cause difficulties for landlords. A former landlord who relies on the property registers will, occasionally, be misinformed as to where liability lies. But it may be assumed that a person on whom a notice is wrongly served will not be slow to dispute liability, and a landlord who has not left everything to the last minute should have ample opportunity to re-serve on the right person. In order to assist landlords, a person on whom a notice was mistakenly served should be under a statutory duty to disclose the name and address of the proper tenant or, failing that, such other information as might enable the proper tenant to be traced.[118]
6.60 Liability might not be disputed if the notice is only a preliminary document warning of a possible claim in excess of £500.[119] This is because such a notice is not in itself a demand for payment. It is true that the explanatory notes accompanying the notice state that "if you have sold or transferred the property and are no longer the tenant, please give this notice to the new tenant".[120] But not everyone will comply, and there is a risk that service on the wrong person will not come to the landlord's attention. In that case the notice would be ineffective. Here the landlord seems in greater need of protection than the tenant. In relation to a preliminary notice (only), therefore, a landlord should be able to rely on the register. If he serves on the person who is registered as tenant, then he has done enough. A notice that is "wrongly" served will usually be passed on to the current tenant. Where this is not done, the current tenant is in effect being penalised for his failure to register.
6.61 Sometimes there are joint tenants, such as a husband and wife. In that case all co-tenants will be the "former tenant" under the definition, and all will be liable for payment of compensation. We suggest that, in a question with the former landlord, liability ought to be joint and several, but with an underlying liability based on the size of the pro indiviso share. Any co-owner could be called upon to pay the former landlord, but would then have a right of relief against fellow co-tenants.[121]
6.62 We recommend that
35. (a) For the purposes of compensation, "former landlord" and "former tenant" should mean the person who, immediately before the appointed day, has right to the interest of the landlord or, as the case may be, of the tenant (and where more than one person comes within this description, the person who has most recently acquired such right).
(b) Where a person on whom a notice is served under recommendation 29 is not the former tenant that person shall be under a duty to disclose to the former landlord the identity and address of the former tenant or failing that, such other information as might enable the former tenant to be traced.
(c) A preliminary notice under recommendation 33 should be validly served if it is served on the person who is the registered tenant under the qualifying lease.
(d) Where the interest of a tenant is held by two or more persons as common property
(i) any liability to pay compensation should be their joint and several responsibility; but
(ii) as among themselves they should be liable in the proportions in which the interest is held.
(Draft Bill ss 45(2), 49, 52, and 68(1))
Time scale
6.63 There will be a gap, perhaps of two years, between the passing of the legislation and the appointed day. This will give the landlord time to investigate the rent, including any cumulo rent, and to make the necessary administrative arrangements for serving notices. The obligation on any third party collector[122] will be in force from this time. If more than £500 is being claimed, the landlord must serve a preliminary notice at least six months before the appointed day.[123] Rent is abolished on the appointed day itself, along with the other rights and obligations arising under the lease, and claims for compensation can then be made at once. Well-prepared landlords are likely to serve a notice as soon as possible after the appointed day, for late service means late payment, and there is no provision for interest. But in all events all notices claiming payment must be served within two years of the appointed day.[124] Service constitutes the debt. Except where an instalment scheme is in force, the former tenant must pay within eight weeks,[125] or within four weeks where a second notice has been served in respect of additional compensation.[126]
Enforcement
6.64 As well as being a personal debt of the tenant, rent is (through the landlord's hypothec) secured on moveables brought on to the land.[127] Further, until recently non-payment could lead to irritancy of the lease, but irritancy was abolished for most ultra-long leases by the Leasehold Casualties (Scotland) Act 2001.[128] After the appointed day there will be no lease to irritate, and the landlord's hypothec will similarly be disapplied. Thus the compensation due by the former tenant will be an ordinary, unsecured debt.[129] This has the effect of taking the payment out of the system of land tenure and conveyancing, and making a clean break with the leasehold antecedents of the new title.
Payment by instalments
6.66 The scheme set out in the 2000 Act can readily be adapted.[130] It would work as follows. Any compensation of £50 or more will qualify for payment by instalments. For this purpose compensatory payment and additional payment are viewed separately, so that if a former landlord served notices claiming £40 by way of compensatory payment and a further £150 as additional payment, only the latter could be paid by instalments. The instalment scheme is tiered. Where compensation is between £50 and £500 there would be 5 instalments payable on the next 5 term days of Whitsunday (28 May) and Martinmas (28 November) (ie over a period of 2½ years); where it is between £501 and £1000 there would be 10 instalments payable on the succeeding 10 term days (5 years); where it is between £1001 and £1500 there would be 15 instalments payable on the succeeding 15 term days (7½ years); and where it is more than £1500 there would be 20 instalments payable on the succeeding 20 term days (10 years). The instalments would be equal instalments or as equal as can be. To provide for interest would be to turn a simple scheme into a complex one; but in recognition of the administrative and other costs for the former landlord we propose a surcharge amounting to 10% of the total compensation. This would be payable at the time when the former tenant elects to pay by instalments, and could not be recovered if the scheme were later abandoned.
6.67 Where the payment requested - whether as compensatory payment or additional payment - is £50 or more a former landlord must serve with the notice an instalment document.[131] If, in the case of additional payment, a second notice is served, following a definitive decision on the amount due,[132] an instalment document must accompany that notice as well. Failure to comply with this rule will invalidate the notice in question and (unless the correct documents are re-served) excuse payment by the former tenant. Prior to service the former landlord must complete the document with details of the compensation, the number of instalments, the dates of payment, and the amount of the surcharge. Explanatory notes (in a statutory form) should be attached to the document. On receipt, the former tenant must sign, date and return the instalment document, along with the 10% surcharge. If this is not done within the period allowed for payments - 8 weeks in the normal case but 4 where a second notice is served in respect of an additional payment[133] - there is no entitlement to pay by instalments.
6.68 Once an instalment scheme is in place, the former tenant must make the stipulated payments on each succeeding term day. If an instalment is late by more than 6 weeks, the scheme is deemed abandoned and payment is due in full. There is of course nothing to stop the former tenant from paying in full at any time. Further, if the property is sold, payment in full is due not later than a week after the former tenant ceases to be owner.[134]
6.69 We recommend that
36. (a) Where the compensation due as
(i) compensatory payment, or
(ii) additional payment
is £50 or over, the former landlord should serve an instalment document with the notice in which payment is claimed. If this is not done, the notice should have no effect.
(b) The document should specify
(i) the compensation due
(ii) the number of instalments
(iii) the amount of each instalment
(iv) the date of the first and subsequent payments
(v) the amount of the surcharge, and
(vi) have explanatory notes attached.
(c) A former tenant who wishes to pay by instalments should sign, date and return the instalment document, along with the surcharge, within the period allowed for payment.
(d) The instalments should be determined in accordance with the following table
Compensation due Number of instalments
between £50 and £500 5
between £501 and £1000 10
between £1001 and £1500 15
more than £1500 20
(e) The instalments should be equal instalments payable half yearly at Whitsunday and Martinmas beginning at the next term day.
(f) The unpaid balance should become immediately due and payable if
(i) an instalment is unpaid for 6 weeks, or
(ii) following sale, the former tenant ceases to be owner of the property.
(Draft Bill ss 31(5), 39(5), 43(4), and 46)
Service
6.70 Liability depends on service of a notice; and once a notice is served, the date of service is the starting point both for the period allowed for payment or return of the instalment document (4 weeks or 8 weeks), and for the quinquennial prescription.[135] Following the 2000 Act,[136] we suggest that service should be effected by delivery or by registered post or recorded delivery. Delivery involves handing the documents personally to the former tenant. If the lease was held pro indiviso, separate service is needed for each co-tenant.[137] The date of service would be the date of delivery or of posting.
6.71 If post is used, the notice should be sent to the former tenant's home, place of business or ordinary postal address (or to the most recent known such address). Documents which are returned marked undelivered could be formally re-served on the Extractor of the Court of Session. A postal receipt coupled with a short prescribed certificate signed by the sender would be sufficient evidence of service. Alternatively, a prescribed acknowledgement could be signed by the former tenant.[138]
6.73 We recommend that
37. (a) Notices under recommendations 29, 33 and 36 should be served on the former tenant
(i) by delivery, or
(ii) by registered post or recorded delivery to the former tenant's place of residence, place of business or ordinary postal address (or to the most recently known such address).
(b) If a notice sent by post is returned marked as undelivered, it should be competent for it to be re-served on the Extractor of the Court of Session.
(c) The following should be sufficient evidence of service
(i) a certificate signed by the sender or his agent and accompanied by a postal receipt, or
(ii) an acknowledgement signed by the former tenant, or
(iii) an acknowledgement of receipt by the Extractor.
(d) The date of service should be the date of delivery or, as the case may be, of posting.
(e) In paragraph (a) notice includes an instalment document and former tenant includes tenant.
(Draft Bill s 47)
Negative prescription
6.74 Rent prescribes after five years.[139] The same rule should apply to the obligation to make a compensatory payment or additional payment.[140] It will be necessary to amend the Prescription and Limitation (Scotland) Act 1973 to make this clear.[141] Our recommendation therefore is that
38. The obligation to make a compensatory payment or additional payment should prescribe after five years.
(Draft Bill s 50)
Unpaid rent
6.75 Unpaid arrears of rent are unaffected by our proposals. A person who was liable for arrears before the appointed day will continue to be liable after that day. The prescribed notices include a space for claiming arrears.[142] In the absence of a landlord, the landlord's hypothec would cease to be available. Any rent which has accrued but is not yet due should be deemed to become due on the appointed day itself.[143] Thereafter there would be no further liability for rent.
Leasehold casualties
6.76 Until recently tenants under some ultra-long leases were subject to casualties. Casualties were obligations to pay money (other than rent) at certain intervals, regular or irregular - for example, every 19 years, or on the assignation of the lease. However, leasehold casualties were abolished on 10 May 2000 by the Leasehold Casualties (Scotland) Act 2001.[144] The Act made provision for compensation and no separate provision is needed here.[145] The legislation applied to all leases granted for a period of not less than 175 years and so will cover all the leases which qualify for our scheme.[146]
Ü Þ
Note 3 Abolition of Feudal Tenure etc. (Scotland) Act 2000 part 3. For a detailed discussion, see Scot Law Com No 168 part 3. [Back] Note 4 The "appointed day" is the day on which all ultra-long leases are converted to ownership. It is the first Whitsunday or Martinmas which occurs two years after section 58 of the draft bill comes into force. [Back] Note 5 Paras 6.656.69. [Back] Note 6 Paras 6.486.51. [Back] Note 7 For notices of exemption see part 7. [Back] Note 8 Appendix C para 17. [Back] Note 9 Land Tenure Reform (Scotland) Act 1974 ss 46; Abolition of Feudal Tenure etc. (Scotland) Act 2000 s 9. [Back] Note 10 Scot Law Com DP No 112 para 3.10. [Back] Note 11 However, it may be noted that under the 1954 Act scheme the multiplier for profit rent, in a case where the unexpired duration was 96 years or more, was 19.85. See Long Leases (Scotland) Act 1954 s 9 and sched 3. [Back] Note 12 Ground Rents Act (Northern Ireland) 2001 s 5(1) and sched 1; Ground Rents (Multiplier) Order (Northern Ireland) 2002 (Statutory Rules No 228). [Back] Note 13 The evidence, which is dated 2 November 1999, is reproduced as part of the Stage 1 Report issued by the Justice and Home Affairs Committee on 9 December 1999. [Back] Note 14 Nonetheless provision is made for the possibility of rent review at para 6.30 below. [Back] Note 15 Paras 6.43 and 6.44. [Back] Note 16 Compare s 31(1) of the draft bill with s 8(1) of the 2000 Act. [Back] Note 17 For "marriage" or "merger" value, see Scot Law Com DP No 112 para 4.28. [Back] Note 18 Paras 6.486.51. [Back] Note 20 Robert Rennie, Minerals and the Law in Scotland (2001) pp 1101 and 1226. [Back] Note 21 Paras 2.34 and 2.35. One criterion for such a lease is that the rent is wholly or partly calculated by reference to a royalty payment. [Back] Note 22 Of the 2608 leases in respect of which we have information on this point, division had occurred in 1503 cases (57.63%). [Back] Note 23 Of the 1476 divided leases where our survey provided information on this point, there was informal apportionment in the assignations of 586 (39.7%). [Back] Note 24 We owe this analysis to Mr Angus McAllister. For personal bar in the analogous case of consent to assignation, see Paton & Cameron, Landlord and Tenant pp 1556. [Back] Note 25 For the distinction in the context of feuduty, see Scot Law Com No 168 paras 3.33.5. [Back] Note 26 Allocation rather than apportionment is the term used in the bill. [Back] Note 27 A small difference is that, whereas under the 2000 Act s 9(3) the former superior apportions the compensatory payment (ie the cumulo feuduty after application of the redemption multiplier), in the present scheme what is allocated is the rent itself. See draft bill s 36(1),(2). This is to take account of the fact that one of the leases might be exempt from conversion and will require a definite, and allocated, rent for the future. See s 36(5) of the draft bill. [Back] Note 28 ie the third situation described earlier. [Back] Note 29 Draft bill s 48. [Back] Note 30 See sched 9 of the draft bill. [Back] Note 31 Where, however, one of the leases subject to the cumulo rent is an exempt lease the tenant of that lease can challenge the allocation made by the landlord by applying to the Lands Tribunal for an order fixing the rent for that lease for the future. See s 37 of the draft bill. That provision also allows the tenant of such a lease to seek a similar order where no steps have been taken by the landlord to fix the future rent. [Back] Note 32 Take the case where lease A is followed by sublease B of part of the subjects of lease A. Lease A is a qualifying lease in relation to the remaining subjects and a superior lease in relation to the subjects of sublease B. Sublease B is exempt (see part 7 of the report). On the appointed day lease A will continue in force in relation to the subjects of sublease B but will be extinguished in relation to the other subjects. Alternatively, the retained part of lease A may be exempt. This part would continue after the appointed day. On the appointed day lease B would be converted into ownership and lease A would be extinguished to the extent that it is a superior lease. See ss 13 and part 4 of the draft bill. [Back] Note 33 See s 35 of the draft bill. [Back] Note 34 Again, under s 37 of the draft bill, the tenant may apply to the Lands Tribunal for an order fixing the rent for the continuing part of the lease. An application may be made where the landlord has not taken steps to fix the rent or in response to an allocation. [Back] Note 35 See sched 10 of the draft bill. [Back] Note 36 Abolition of Feudal Tenure etc. (Scotland) Act 2000 s 8. [Back] Note 37 The rules of service are discussed at paras 6.706.73 below. [Back] Note 38 The Scottish Landowners' Federation and Mr B G Hamilton. [Back] Note 39 Leasehold Casualties (Scotland) Act 2001 ss 2 and 3. [Back] Note 40 Scot Law Com DP No 112 paras 3.12 and 3.13. [Back] Note 42 Paras 6.486.51. [Back] Note 43 For additional payment see paras 6.28 ff. [Back] Note 44 See paras 2.232.26. [Back] Note 45 This is the same measure as used in rental value leasehold casualties, for which see Scot Law Com No 165 paras 2.92.12 and n 28. [Back] Note 46 Scot Law Com DP No 112 para 3.22. [Back] Note 47 See paras 6.116.14 above and s 36 of the draft bill. [Back] Note 48 Para 6.15 and s 35 of the draft bill. [Back] Note 49 Paras 6.286.47 . [Back] Note 51 As to which see the Long Leases (Scotland) Act 1954 s 19(a) (grain and other fungibles) (now repealed by 2000 Act sched 13), and the Local Government (Scotland) Act 1973 s 228 (fiars prices). [Back] Note 52 The Royal Institution of Chartered Surveyors in Scotland were of the view that rent review was sometimes provided for. [Back] Note 53 For a statutory formula designed to accommodate rent review, see the Ground Rents Act (Northern Ireland) 2001 sched 1 para 5. [Back] Note 54 Para 6.226.27. [Back] Note 55 For a discussion, see Scot Law Com No 165 paras 5.4 ff (and especially para 5.5). [Back] Note 56 Long Leases (Scotland) Act 1954 ss 7 and 8. [Back] Note 57 Ground Rents Act (Northern Ireland) 2001 s 3(4). [Back] Note 58 Paras 2.132.21. [Back] Note 59 This is the cut-off point in England and Wales for conversion without any possibility of compensation. See s 153 of the Law of Property Act 1925. [Back] Note 60 Appendix C para 14. [Back] Note 61 Paras 2.27 and 2.28. [Back] Note 64 The Lands Tribunal has power to award "a sum to make up for any effect which the title condition produced, at the time when it was created, in reducing the consideration then paid or made payable for the burdened property": see Title Conditions (Scotland) Act 2003 s 90(7)(b) which replaced an equivalent provision in Conveyancing and Feudal Reform (Scotland) Act 1970 (s 1(4)(ii)). [Back] Note 65 2000 Act ss 3340. See further Scot Law Com No 168 paras 5.145.57. [Back] Note 69 See sched 12 of the draft bill. [Back] Note 70 Paras 6.486.51. [Back] Note 71 Instalment payment is not, however, available for sums under £50. [Back] Note 72 See 2000 Act s 8(5). [Back] Note 73 This notice must be served within 5 years of the appointed day. [Back] Note 74 Paras 6.656.69. [Back] Note 75 The rules as to timing of payment are set out in ss 41(2) and 42(5) of the draft bill. [Back] Note 76 Abolition of Feudal Tenure etc. (Scotland) Act 2000 s 44(2). [Back] Note 77 The application must be made within 5 years of the appointed day. [Back] Note 78 See paras 6.656.69 and draft bill s 43. [Back] Note 80 Paras 4.714.72. [Back] Note 81 For a recent formulation to this effect, see Land Reform (Scotland) Act 2003 s 59(6). The words "knowledgeable and prudent" were removed from the section in question at stage 2 of the bill on the basis that removing the words would make no difference to the process of assessing market value of land (Minutes of the Justice 2 Committee of the Scottish Parliament, Meeting No 39, 5 November 2002). [Back] Note 82 This is broadly the test used for the conversion of leases in England and Wales, although the position there is complicated by the fact that the price is discounted. See Leasehold Reform Act 1967 s 9(1). [Back] Note 83 RICS Appraisal and Valuation Standards (5th ed, 2003) practice statement 3.2. [Back] Note 84 See Leasehold Reform Act 1967 s 9(1) as amended by the Housing Act 1969 s 82. In the English scheme the special interest of the tenant is likewise disregarded. [Back] Note 85 The difference between the two amounts sometimes known as the "marriage value" or "merger value" may nonetheless be taken into account to some extent in the calculation of market value, for a potential purchaser will be mindful of the possibility of a future higher bid from a sitting tenant. [Back] Note 86 Strictly the position of the special seller is of relevance, not for the valuation of the leased property itself, but for the question of whether the landlord has suffered additional loss due to the effect on other land which he also owns. For the distinction see eg Land Clauses Consolidation (Scotland) Act 1845 s 61. [Back] Note 87 Severance is also disregarded under the Land Reform (Scotland) Act 2003 s 59(7)(b)(iii). [Back] Note 88 Paras 3.34 and part 4. [Back] Note 90 As just mentioned: see para 6.41. [Back] Note 91 Title Conditions (Scotland) Act 2003 s 90(7)(b) which replaced an equivalent provision in Conveyancing and Feudal Reform (Scotland) Act 1970 (s 1(4)(ii)). [Back] Note 92 Abolition of Feudal Tenure etc. (Scotland) Act 2000 s 37(2). [Back] Note 93 See Manz v Butter's Trs and Others 1973 SLT (Lands Tr) 2. For an analysis of current practice, see Scot Law Com No 168 paras 5.495.53. [Back] Note 94 Scot Law Com No 168 para 5.46. [Back] Note 95 I> Kenneth G C Reid, The Abolition of Feudal Tenure in Scotland (2003), para 9.17 and the example given there in the context of the reservation of development value to a superior. [Back] Note 96 The price of two and a half per cent Consolidated Stock is calculated at the middle market price at the close of business last preceding the appointed day. See draft bill s 32. [Back] Note 98 For our previous approach, and for the reasons for departing from it, see paras 6.19 and 6.20. [Back] Note 99 Paras 6.176.21 (compensatory payment) and 6.39 (additional payment). [Back] Note 101 See draft bill scheds 14 and 15. [Back] Note 103 For service, see paras 6.706.73. [Back] Note 104 Our figures suggest that there are intermediate leases in only around one fifth of cases. [Back] Note 105 For compensatory payment, see paras 6.3 ff. [Back] Note 106 Scot Law Com No 168 para 3.43. [Back] Note 107 The same rule would apply in respect of renewal premiums of £100 or less (for which see paras 6.246.25). So if A leases to B and B subleases to C, and both head lease and sublease are renewable every 99 years on payment of a premium of £100 or less, the rent of each lease is increased by the premium averaged over 99 years. This means that, while B must pay A for a renewal that he no longer needs, he has an equivalent claim against C. [Back] Note 108 ie paras (a)(d) of recommendation 31 (para 6.38). [Back] Note 109 ie paras (e)(g) of recommendation 31 (para 6.38). [Back] Note 110 Normally only the head landlord would have a claim, but occasionally the real loss and hence the claim would lie with an intermediate landlord (as where A leases to B for 999 years and B subleases to C for 200 years). [Back] Note 111 The same principle applies in the 2000 Act (s 35(1)) in respect of compensation in respect of development value burdens. [Back] Note 112 Reid, Property para 657. [Back] Note 113 Abolition of Feudal Tenure etc. (Scotland) Act 2000 s 16(1). [Back] Note 114 Conveyancing (Scotland) Act 1924 ss 35. [Back] Note 115 Title Conditions (Scotland) Act 2003 s 123. [Back] Note 116 This refers to sequential plurality. If two or more people acquired the tenant's interestpro indiviso, they would together count as the "former tenant". See para 6.61 for the distribution of liability. [Back] Note 117 If by the appointed day an executor had already been confirmed, he would "have right" to the tenant's interest by virtue of s 14(1) of the Succession (Scotland) Act 1964 and so would be a "tenant" within our definition. [Back] Note 118 Section 49 of the draft bill. An equivalent duty is imposed by s 15 of the 2000 Act. [Back] Note 119 For which see paras 6.486.51. [Back] Note 120 Draft bill scheds 14 and 15. [Back] Note 121 The rule is the same under the 2000 Act: see s 16(4). [Back] Note 122 See para 6.13. [Back] Note 123 Paras 6.486.51. [Back] Note 124 Draft bill ss 31(2) and 39(2). [Back] Note 125 Draft bill ss 34 and 42. [Back] Note 126 Draft bill s 43(5). A second notice is needed where the tenant disputes the sum originally claimed, and the amount due is then settled by agreement. See para 6.39. [Back] Note 127 See generally Paton & Cameron, Landlord and Tenant pp 1445. See also the changes made to the landlord's hypothec by s 194 of the Bankruptcy and Diligence (Scotland) Bill currently going through the Scottish Parliament. [Back] Note 128 Leasehold Casualties (Scotland) Act 2001 ss 5 and 6. [Back] Note 129 The rule is the same for compensation due under the 2000 Act. See Scot Law Com No 168 para 3.21. [Back] Note 130 Abolition of Feudal Tenure etc. (Scotland) Act 2000 s 10 and sched 3. [Back] Note 131 For which see draft bill sched 16. [Back] Note 134 This reproduces the rule which was formerly in s 5 of the Land Tenure Reform (Scotland) Act 1974 by which redemption of feuduty occurred if the feu was sold. [Back] Note 135 For prescription see para 6.74. [Back] Note 136 Abolition of Feudal Tenure etc. (Scotland) Act 2000 s 11 and sched 4. [Back] Note 137 Draft bill s 52(2). [Back] Note 138 Draft bill s 47(3) and sched 17. [Back] Note 139 Prescription and Limitation (Scotland) Act 1973 s 6 and sched 1 para 1(a)(v). [Back] Note 140 But where the amount of the additional payment is fixed by the Lands Tribunal, the order will set up the obligation to pay. The order will be subject to the rules of prescription that apply to other orders of the Tribunal. See Prescription and Limitation (Scotland) Act 1973 s 7. [Back] Note 141 Draft bill s 50. [Back] Note 142 Draft bill scheds 911. [Back] Note 143 Draft bill s 4(3). [Back] Note 144 Leasehold Casualties (Scotland) Act 2001 ss 1(1) and 10(1). The Act implemented our Report on Leasehold Casualties (Scot Law Com No 165, 1998). [Back] Note 145 Leasehold Casualties (Scotland) Act 2001 ss 2 and 3 and scheds 1 and 2. [Back] Note 146 Leasehold Casualties (Scotland) Act 2001 s 1(1). The further limitation, that the lease must have been granted before 1 September 1974, was due to the fact that leasehold casualties could not be imposed after that date. See Land Tenure Reform (Scotland) Act 1974 s 16. [Back]
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