Scottish Law Commission (Reports)

 


PART 7: NOTICES OF EXEMPTION

Introduction

7.1      Earlier we discussed, and accepted, the principle that a tenant can opt out of conversion.^[1] In this short part we consider how an exemption scheme might work.

Exemption

7.2      Publicity. The working assumption is that, on the appointed day, every lease which qualifies will be converted into ownership by statute, and the Land Register amended accordingly. If, therefore, a particular lease is to be exempted from conversion, the exemption process must be sufficiently public to alert the Keeper, the landlord under the lease, and any third party who comes to deal with the property. As elsewhere in our proposals, this seems best achieved by a notice, served on the landlord, and registered in the Land Register or Register of Sasines.

7.3      Tenant under the qualifying lease. Only a tenant can opt out. Conversion is mandatory for the landlord.^[2] Further, if, due to subletting, there is more than one lease and hence more than one tenant, only the tenant under the qualifying lease can procure exemption. A person holding under an intermediate lease, after all, has little either to lose or gain from conversion. He is most unlikely to be exposed to a substantial compensation claim, which is the main justification for opting out. And a person with such a modest stake in the property should not be able to deny the qualifying tenant the opportunity to become owner.

7.4      Notice. Opting out requires a notice in the prescribed statutory form.^[3] This will describe the property and identify the lease and the current landlord and tenant. If there are intermediate leases, the landlords of those leases should also be identified.

7.5      Service. Exemption affects the landlord as well as the tenant. It means that the status of landlord is retained and that rent continues to be due; and, immediately and practically, it removes the need for notices for the conversion of leasehold conditions into real burdens or for claims for compensation. It is important, therefore, that the landlord has early warning that exemption is being sought. The tenant should be required to send a copy of the notice. If there are intermediate leases, the landlords under those leases should likewise be notified. The rules of service may be modelled on those already recommended for conversion of leasehold conditions.^[4] Service would be by post, and before registration. The notice would be accompanied by an explanatory note in a prescribed form, explaining the background to the notice and its implications for the recipient. Normally the tenant will know his immediate landlord but is likely to be less certain about landlords further up the chain. An inquiry of the immediate landlord may produce the necessary information. Alternatively, the tenant should be entitled to rely on the Land Register or Register of Sasines, thus ensuring that any disadvantage falls on the landlord who chose not to register and not on the tenant who instructed a search.^[5] Service is excused in the rare case where it is not reasonably practicable - typically because the landlord has disappeared and is untraceable. The notice will give details of service and will be signed only after those details are completed. If service was not practicable, the reasons must be explained.

7.6      Registration. Exemption is completed by registration in the Land Register or Register of Sasines. Since the lease is to continue, registration should be against the interest of the tenant and not of the landlord.^[6] In this way the exemption will be obvious to any third party coming to deal with the lease. Registration must take place before the day on which conversion would otherwise occur, that is to say, before the appointed day. Further, to protect the landlord from incurring the trouble and expense of registering notices of various kinds only to discover, at the last minute, that the lease has been exempted, the final permitted day for registration of a notice of exemption should be two months before the appointed day.^[7] Thereafter it would be too late for exemption, and a landlord could make the necessary preparations secure in the knowledge that conversion will go ahead.

7.7      Effect. For as long as a notice of exemption has been registered and not recalled, conversion is suspended. Hence if, on the appointed day, a notice of exemption is in force in respect of a lease, no conversion will occur and the relationship of landlord and tenant will remain in place. A qualifying lease which is exempt from conversion is termed an exempt lease in the draft bill.^[8]

7.8      Sublease of an exempt lease. If an exempt lease is assigned it remains exempt. A sublease which fulfils the criteria for conversion should be treated in the same way and become an exempt lease on conversion.

7.9      Recommendation. We recommend that

39. (a) A qualifying lease should be exempt from conversion for as long as a notice of exemption is registered and has not been recalled.

(b) A notice should be registrable only –

(i) by the tenant under the qualifying lease, and

(ii) not later than two months before the appointed day.

(c) A notice should be registered against the interest of the tenant under the qualifying lease.

(d) Except where it is not reasonably practicable to do so, a copy of the notice (and explanatory note) should, before registration, be sent by post to –

(i) the landlord under the qualifying lease, and

(ii) the landlord under any superior lease.

(e) It should be sufficient compliance with (d) if the notice is sent to the person who is registered as landlord.

(f) A sublease of an exempt lease should on registration also be exempt from conversion.

(Draft Bill ss 53, 54, 56 and 58)

Recall

7.10      Introduction. The importance of recall was stressed by a number of consultees. A decision to opt out, it was said, should not be a decision for ever. A future tenant might see matters differently, or be more willing (or able) to make the compensatory payment. In that event it should be possible to recall the exemption and proceed to conversion. Indeed, if exemption was irrevocable it would be almost never used. We accept those views. In principle, an exemption should be capable of being recalled.

7.11      Notice of recall. As with the original exemption, recall seems best achieved by service and registration of a notice in appropriate terms. Broadly the same rules would apply. Thus the notice of recall would follow a prescribed form.^[9] It would be served (together with an explanatory note) on the immediate landlord and on the landlord under any superior lease. For this purpose the tenant could rely on the information contained on the register. Following service, the notice would be signed, and registered against the tenant's interest.

7.12      Unexpired duration exceeding 100 years. In general there seems no reason to restrict the period within which an exemption might be recalled. Thus, if, on the appointed day, a lease has still 800 years to run, it would be competent to register a notice of recall for many years into the future. And subject to what is said below,^[10] recall would be permitted before the appointed day as well as after. One restriction, however, seems necessary. Ordinarily, a lease is eligible for conversion only if its unexpired duration exceeds 100 years. This is because 100 years marks the point at which the landlord's reversionary interest may begin to acquire value, and hence the boundary between quasi-ownership and lease proper. Since recall leads to conversion, it would follow that recall should not be available where this durational requirement is no longer satisfied. Thus if a notice of exemption is registered in respect of a lease which, on the appointed day, has 150 years left to run, recall would be restricted to a period of 50 years.

7.13      Effect. On registration of a notice of recall, the lease would once more become eligible for conversion. Conversion could not, however, happen at once. The landlord would need time to prepare and to take advice; and if he wished to convert any conditions of the lease into real burdens, the relevant notice would have to be registered, or an application made to the Land Tribunal, while the lease was still in existence.^[11] We think that a period of six months would be sufficient for this purpose.^[12] This means that conversion would take place on the first Whitsunday or Martinmas falling at least six months after the registration of the notice of recall. For the purposes of other provisions of the legislation, this day would be treated as the "appointed day" in respect of the lease in question.

7.14      If six months is the minimum period needed for the notices and applications to the Lands Tribunal, it follows that recall should not be available during the six months immediately before the appointed day. Otherwise a tenant who wished to avoid the conversion of leasehold conditions might register a recall on the day before the appointed day. It would then be far too late for the landlord to prepare the necessary notice. Rather than prohibit registration of a recall during this period - which would be administratively cumbersome - it seems better to allow registration but to provide that for any recall registered during the six months before the appointed day conversion should be deferred under the rule discussed above. Conversion of the lease would be postponed until the first Whitsunday or Martinmas occurring at least six months after the registration of the notice.

7.15      Recommendation. We recommend that

40. (a) The tenant under a qualifying lease should be able to recall an exemption by service and registration of a notice of recall.

(b) A notice should not be registrable if the unexpired duration of the lease is 100 years or less but otherwise should be registrable at any time.

(c) Where a notice of recall is registered the lease should be converted to ownership on the first Whitsunday or Martinmas occurring six months thereafter: and for the purposes of applying the legislation to that lease, that day should be treated as the appointed day.

(d) The reference to a notice of recall in paragraph (c) includes a notice of recall which is registered during the six months immediately before the appointed day.

(e) The rules for service and registration should be the same as for notices of exemption.

(Draft Bill ss 57 and 58)

Ý
Ü   Þ

Note 1   Paras 3.4–3.8.    [Back]

Note 2   Para 3.1.    [Back]

Note 3   Draft bill sched 18.    [Back]

Note 4   Para 4.60. This in turn is modelled on the rules in ss 41(3), (4) of the 2000 Act. Since money is not being claimed, it is not necessary to require the greater formality which applies in the case of compensatory and additional payments (paras 6.70–6.73).     [Back]

Note 5   A similar rule applies to the preliminary notice for compensation claims in excess of £500. See draft bill s 45.    [Back]

Note 6   Compare here the rule for notices of conversion of leasehold conditions, discussed in para 4.64.    [Back]

Note 7   However, for cases where the application for registration is refused by the Keeper, see para 8.12.    [Back]

Note 8   Section 53(1)(a).    [Back]

Note 9   Draft bill sched 19.    [Back]

Note 10   Para 7.14.    [Back]

Note 11   There would, however, be no need to register the other preliminary notice, claiming compensatory or additional payments in excess of £500. See draft bill s 45. This is because the only purpose of such a notice is to invite consideration of opting out – a possibility which, following recall, would no longer be available.    [Back]

Note 12   This is the same period as was viewed as the minimum necessary for the tenant to consider the merits of opting out: see para 6.48.     [Back]