Bell & Scott's Property Update, October 2009

Welcome to the October 2009 issue of Bell & Scott’s Property Update.

In this month's issue we comment on a case where a tenant managed to avoid being removed from its premises following its landlord’s failed attempt to irritate the lease and a case where neighbours went to war over a disputed boundary.

We also update you on a number of other relevant news items.

Recent cases

Message in a bottle

Kodak was the tenant of a property at 719 South Street and 10/18 Clydeholm Road, Glasgow under a head-lease from Shirlett and Tudor Estates Limited. Kodak, in turn, sub-let the premises to Shoredale Limited. Following a rent free period which ended on 1 August 2007, Shoredale failed to pay the quarter’s rent due on 29 September. Kodak sent an irritancy warning notice to Shoredale, on 9 October, informing it that if it did not pay the rent outstanding (£6,000) within 14 days of the date of service of the notice, Kodak would be entitled to irritate the lease. The sub-lease contained the mandatory legal requirement that Kodak serve any irritancy warning notice in accordance with Section 4 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 (“the 1985 Act”). Shoredale failed to pay the rent in the time given, so Kodak went to court to remove Shoredale from the premises. Shoredale challenged Kodak’s action to remove it from the premises on the grounds that the warning notice, sent on 9 October, was invalid. It was invalid because the 1985 Act only allows irritancy warning notices to be served on tenants by recorded delivery post. Kodak tried to make sure that its notice was received by Shoredale and, to that end, since there was industrial action at the Royal Mail in October 2007, had sheriff officers deliver it.

When the case came to Glasgow Sheriff Court, the sheriff took a practical and commercial view of the matter. He decided that Shoredale had received the warning notice, served by the sheriff officer and was, as a matter of its own admission, behind with its rent. Therefore, the only logical decision he could make was to allow the landlord’s irritancy warning letter to stand. In his view, to have decided otherwise, would have let the tenant off scot-free on a technicality - Kodak had given notice but not in the proper manner.

On appeal to the Inner House of the Court of Session, Shoredale argued that the sheriff had been wrong and that it should be allowed to stay on in the premises because the irritancy warning notice had not been served strictly in line with the 1985 Act.

The Inner House decided in favour of Shoredale. Where an Act of Parliament, just as with a contract, provides for a method of service of notices, then a court must not re-write that Act or contract unless it would make no sense at all to follow it. If Parliament had decided to say that notices must be served by recorded delivery service, then a notice served by a sheriff officer was invalid.

Stephen McDonagh, Associate, comments:

You can look at this decision in two ways: either the law is the law and if Parliament says that all hedges must be three feet high, then three feet high they must be; or, as Mr Bumble says in Oliver Twist, “the law is an ass” - surely the issue of ensuring that the tenant is put on notice is what the law in the 1985 Act is trying to achieve?

I would go with Mr Bumble on this occasion. It was clear, in this case, that Shoredale was behind with its rent (as it freely admitted). It was also patent that Shoredale had signed for the warning notice delivered by the sheriff officer on 9 October. Why should a landlord be denied his lawful remedy when the actual reason for the breach and ending of the lease was undisputed by the tenant? The court goes for a technicality here. It is, of course, correct that the 1985 Act only provides for service of irritancy notices by the recorded delivery service and, if other methods of service were permissible, then the statute would have said so. A strict legal approach supports the view the court took in this case. However, the practical result of the decision is that a landlord has to give his tenant notice in a manner which, arguably, makes it less certain that his tenant will receive the notice. What the 1985 Act requires a landlord to do is simply to put the notice in the recoded delivery service – there is no need to go any further than that because the law presumes that the tenant has received the notice if a landlord can prove that he put the notice into the recorded delivery service. Consequently, a tenant could be deprived of its right to occupy a property under a lease without having received the statutory warning – that cannot be the intention of the “protective” provisions in the 1985 Act.

I anticipate that the decision will be one of the first property cases to be appealed to our new Supreme Court in London and we may see an amendment to the 1985 Act somewhere down the line. It is interesting to note that, for agricultural tenancies in Scotland, a landlord can serve a notice to quit on a tenant by using one of three methods provided for by statute – one of those is delivery of the notice by sheriff officer. To avoid any confusion in the mind of the tenant which may arise if a landlord were to deploy all three methods of service, the landlord can only choose one method and cannot, therefore, go for a belt and braces approach. Perhaps this will be the change we will see in the 1985 Act.

In the interim, landlords are advised to stick strictly to the terms of any notice provision provided for in a lease for the service of any notice on a tenant and, where an irritancy warning notice for commercial premises is concerned, it is vital that it is sent by recorded delivery post and not by any other means. For the tenant who is on the receiving end of an irritancy warning notice, in these difficult times, care must be taken to check that it has been served by the right party and via the recorded delivery service- that’s what the court says the 1985 Act requires.

Case referred to: Kodak Processing Companies Limited v Shoredale Limited [2009] CSIH 71.

A full text of the decision is available on the Scottish Court Service website accessible here

Boundaries and bad blood

Mr Robertson owned a house and a builder’s yard at 52 Carnwath Road, Braehead, Forth, Lanark. In 2002 he sold the house but retained most of the yard. After the sale, Clydesdale Homes Limited (“Clydesdale”) bought a property adjacent to the house and yard. Mr Robertson is a Director of Clydesdale. Later, Clydesdale built a housing development on the yard that had been retained by Mr Robertson in 2002, and also on the adjacent site. The access road to the development runs next to that part of 52 Carnwath Road which Mr Robertson had sold in 2002 and which is owned by Angela Quay and Mario Miquel de Aguiar (“Q&A”).

In 2005, Clydesdale erected a fence along the boundary between the access road and 52 Carnwath Road. Q&A removed part of that fence believing that it had been built some two metres from the legal boundary and on ground belonging to them. The result was that Q&A were being deprived of seven square metres of land. Clydesdale disagreed.

It was agreed that, in law, the Title Plans produced by the Registers of Scotland and included in the Land Certificates were to determine the location of the legal boundary. These Title Plans all showed the boundary lying in the same location. The only question was whether the new fence had, in fact, been built at the boundary location shown by the Title Plans.

Each party brought along a surveyor to give expert evidence on whether the fence had been constructed in the correct location but the two surveyors arrived at different conclusions. Mr Robertson gave evidence that the boundary fence had been constructed exactly upon the hidden remains of a previous boundary fence. Q&A gave evidence that they had exercised their dogs across that ground in the past and that there had been no fence there before.

The judge accepted that neither surveyor could be certain about the accuracy of his evidence given the margin for error involved. The difference between them was, more or less, within that margin of error. However, since he had to rule on the issue, the judge preferred the evidence given by the surveyor for Clydesdale on the basis that he had gone to greater lengths and used several different means of finding and cross-checking his measurements. While it was still possible that Clydesdale’s expert was wrong, he was more likely to have arrived at accurate results.

The judge also accepted Mr Robertson’s evidence that Clydesdale had constructed the new boundary fence along the line of a previous boundary fence. While that evidence was contradicted by Q&A, the judge was not prepared to accept that either party was lying. Instead, Q&A’s evidence could be explained by the old fence being completely broken down and its remains having been hidden by bushes. Q&A had not tried to find an old fence (as Mr Robertson had) and so they had not been aware of its existence.

The judge ruled that Clydesdale had built the fence in the correct location.

Neil Fraser, Associate, comments:

There is a good reason why judges’ shoulders sag with despair when asked to determine a boundary dispute. Land ownership itself can be an emotive subject and frequently this is compounded by a breakdown in the relationship between the neighbours involved. It is only when feelings run high, positions become entrenched and a restoration of good relations becomes impossible that it is thought worthwhile to spend considerable time and money going to court over seven square metres of ground. Even if the law is clear (as in this case), the evidence is invariably contradictory and filled with material that is of great importance to the litigants but of little relevance to the judge’s decision.

How did Clydesdale and Q&A find themselves in this position? The relationship between the parties was not relevant to the outcome of the case, and so the judge did not linger on that, but if we are looking for explanations then there is a little to be gleaned from the reported decision: Ms Quay had been employed by Mr Robertson at the builder’s yard but had been made redundant. She had refused to give access to Clydesdale’s development over her land. She felt that she had never been fully informed of the nature or extent of Clydesdale’s development. She objected strongly to the boundary having been erected without consultation with her. There was also a question over whether or not Mr Robertson was godfather to Miss Quay’s daughter – a question that the judge was happy to leave unresolved. There had been some attempt at a negotiated solution but this had failed. Clearly, there had been an irretrievable breakdown in the relationship between the parties and this was a major factor in driving the case to court instead of it being resolved by negotiation.

We might have expected that Clydesdale would take a commercial view of the situation and just let it go. However, they were unable to do so. While the words “breach of Road Construction Consent” were not used in the written judgement, Clydesdale required the disputed ground to provide an access road wide enough for emergency and larger vehicles. The word “ransom” is not used either, but if Q&A were able to show that the boundary was in the wrong location, they would have been in a powerful position.

As any surveyor or developer will know, defining the location of a boundary to within two metres by reference to plans can be extremely difficult. The breadth of the boundary line drawn on the plan may itself represent a two metre strip on the ground. The underlying Ordnance Survey data used for the plan may not be accurate. The scale of Title Plans is invariably unhelpful for very small areas. Does that make much difference to an impassioned owner? Maybe not. Does it make much difference to a developer whose development hangs on it? Again, maybe not. And so the parties find themselves in court, each arguing that their own expert’s evidence is better than the other’s, but usually without achieving the decisive impact that each party expects.

As demonstrated by this case, there will be occasions when a court action becomes inevitable. It is, therefore, a counsel of perfection, but this case can be taken as a reminder that developers will often be best served if they can keep on good terms with neighbouring landowners, even though that will sometimes be challenging. Also, it is worthwhile for developers to consider which boundaries might be critical to the success of a development, to err on the side of caution, and (as ever) to anticipate and resolve any problems prior to development taking place.

Case referred to: Clydesdale Homes Limited v Angela Quay and Mario Miquel de Aguiar [2009] CSOH 126

A full text of the decision is available on the Scottish Court Service website accessible here

News Updates

Carbon Reduction Commitment Energy Efficiency Scheme

The UK Government has published the final rules for the emission trading scheme which will impact on 5,000 UK businesses on 1 April 2010.

The government believes that the Carbon Reduction Commitment will encourage organisations to reduce their energy use and save a total of £1bn on energy each year by 2020.

Businesses that use more than 6,000 MWh of energy on half hourly meters each year - approximately £500,000 - will be covered by the CRC, while those using more than 3,000 MWh of energy still need to report in case they one day fall under the CRC. Organisations will be ranked in a league table that rewards the best performers and fines the worst.

The Department of Energy and Climate Change (DECC) said it had made changes to the regulations following input by the industry:

• Organisations will only have to report their energy use in the first year - from April 2010 - and not buy allowances.
• Extra credit will be given in the second year - from April 2011 - to organisations that take early action to cut emissions.
• Subsidiaries will be given the chance to participate in the scheme individually, rather than as part of their parent company.

The CRC has been renamed the Carbon Reduction Commitment Energy Efficiency Scheme.

A briefing on the Scheme is available in our September 2009 issue of Property Update accessible here. Details of the changes to the Scheme are available on the DECC website accessible here

Scottish Planning Policy: proposed policy changes consultation

The Scottish Government has issued a consultation on the proposed changes to the Scottish Planning Policy. The Scottish Planning Policy and National Planning Policy Guideline series is being consolidated into a single, shorter document as part of the commitment to practical and proportionate planning policies outlined in the government’s Delivering Planning Reform proposal.

The consultation on the proposed policy changes and addendum to the Environmental Report will run for 6 weeks, from 1 October 2009 until 12 November 2009.

Details are available on the Scottish Government website accessible here

Industry wants FSA to regulate buy-to-let mortgages

The property industry is calling for all buy-to-let mortgages and property investment clubs to be FSA regulated in a crackdown on reckless lending that would help refinance the housing market. The British Property Federation (BPF) is taking the lead.

Currently, buy-to-let mortgages are treated like business loans, whereas most other mortgages - such as owner-occupier or equity-release products – are controlled by the FSA.

Details are available on the BPF website accessible here

Companies Act 2006: 1 October changes

Bell & Scott's client briefing on the provisions of the Companies Act 2006 coming into force on 1 October is available on our website accessible here

Bell & Scott's Construction Law Autumn Update

Bell & Scott will hold a Construction Law Autumn Update seminar in its Edinburgh office on Thursday 22 October 2009. Registration is free of charge. Speakers will cover recent developments in environmental regulation, an overview of legislative changes and practical lessons to be learned from case law in 2009. For further information please visit Bell & Scott's website here

Bell & Scott at the BCSC Conference, Manchester

Dawn Henderson, Jane Steel and Anne McGregor will attend this year's BCSC Conference which takes place in Manchester from 9-11 November. If you would like to meet the team at the conference please email events@bellscott.co.uk. For further information on the conference visit the BCSC website here