Bell & Scott Property Update, September 2007

Welcome to the September 2007 issue of Bell & Scott’s Property Update.

In this month's issue we comment on a case where a couple instigated the new sunset rule under the Title Conditions (Scotland) Act 2003 to rid their title of an old restriction which prevented them building an extension to their property. Then we comment on a case where tenants argued that their landlords were being unreasonable in bringing their lease to an end when they had made good the wants of repair which the landlords complained of by the time the Court had to give the removal order.

We also update you on (1) the latest planning news; (2) government consultations on Property Authorised Investment Trusts; (3) a new crime that companies can commit; (4) a forthcoming SEPA policy for developments; and (5) a new service charge code for Scottish leases.

Recent Decisions

Very old title conditions prohibiting a use of your property may still be enforceable today.

The Lands Tribunal was asked to consider whether or not to keep alive building restrictions, dating from the late 19th Century. The Richardsons had obtained planning permission to build a large extension to their house. They served notice on their neighbours, the Browns, telling them that the title restrictions, which prevented further building, were to be removed.

Title to the Richardsons’ house prohibited further building without the consent of the superior. The restrictions were set down in a Feu Charter granted in 1888 by a superior who sold off 36 acres of ground in six lots for houses. Since the restrictions were more than 100 years old, the Richardsons decided to engage the “sunset rule” in the Title Conditions (Scotland) Act 2003 (“the Act”). This allows an affected owner to free himself from old restrictions which might thwart proposals for a property. The Browns, who were opposed to the proposed extension, applied to the Lands Tribunal to keep the building restrictions alive.

The lot in which both the Richardsons’ and the Browns’ houses were situated included a uniform terrace of granite houses and another street which was not developed until 50 years later. This later development did not follow the same style and design as the street in which their houses were located. Over the years, there had been a number of extensions of various shapes and sizes added to the backs of the houses in the lot and many huts and garages had been built in the garden areas. The frontages of the houses and their granite stonework, however, had remained the same over the years.

The Lands Tribunal decided that the purpose of the title conditions was to protect amenity in a general way, originally in the interest of the superior and now in the interest of those who had title and interest to object under the Act i.e. the neighbours. Although there had been quite a few changes in the areas behind the houses, there had been no material change in the character of the neighbourhood as a whole. A very old burden which was still serving, or could still serve, its original purpose might reasonably be kept alive. It considered that the purpose of the conditions, which was to protect residential amenity in a general way, still held good in the area today. The continuation of the restrictions could usefully prevent developments such as sub-division of a property or the building of additional houses which may detract from the overall amenity of the area. However, given that houses on the terrace had been extended in a haphazard way without any control over the years, it would be unreasonable to prevent the Richardsons from making a reasonable use of their property to provide for greater living space. Therefore, the conditions would be varied (not extinguished) to the extent only to allow the Richardsons to build the extension for which they had received planning permission.

Heather McCracken, Associate in our Strategic Land Team comments:

The conditions which can be enforced against the owner of a property and by whom, are, obviously, a matter of some importance to that owner. It is particularly relevant when the property is to be developed or the owner intends to change the use to be made of the property.

Before the Act came into force, the superior was the person most likely to enforce any condition. Now, the superior’s interest has been abolished and he no longer has that right. However, this does not mean that the title conditions are no longer enforceable by anyone. The Act makes provision for certain conditions to be enforced by neighbouring owners, provided they can establish that they have both title and interest to do so. The Tribunal decided in this case that the Browns could rely on the conditions and therefore potentially thwart the Richardsons’ proposals if there was still a good reason for them to do so.

The “sunset rule” is a useful tool which allows the Tribunal to remove a condition if it is more than 100 years old. When the “sunset rule” is set in motion and an affected party challenges the procedure, the Lands Tribunal must consider whether the title restrictions, despite their age, still serve a purpose over a century later. When the Act was passed, there was some discussion as to whether the Tribunal would simply “rubber stamp” an application or whether they would exercise their discretion to refuse. In this case, the Tribunal felt that even though a burden is old, it shouldn’t necessarily be abandoned if it still has a useful function to perform.

At the moment, every decision the Lands Tribunal makes in connection with the Act is of interest because we are still trying to identify how the legislation will work. If this decision is anything to go by, it seems likely that the approach will be to preserve burdens that they think are relevant, no matter how old they are, but that they will be quite amenable to any request to vary the condition to allow the person affected by the burden to do anything which the Tribunal considers reasonable, on their own property.

If this continues to be their approach, it will mean that it remains important for any purchaser to be aware of the conditions attaching to any property they are intending to purchase and, irrespective of how old those conditions are, to be satisfied that either their proposals do not contravene any of those conditions or, if they do, to approach the Lands Tribunal for whatever discharge or variation they can obtain, before buying the property. Because of the Tribunal’s approach, any other strategy is probably too risky.

Case referred to Brown and Another v Richardson and Another LTS/TC/2006/41 .

A full text of the Lands Tribunal decision is available on the Scottish Courts website accessible here.

Court calls time on Racquet Club

The case of Maris v Banchory Squash Racquets Club Limited stresses the importance for tenants to rectify any breach of a lease within the timescale set out by the landlord in his termination warning notice. Remedying the breach of the lease beyond the reasonable time given by the landlord in his warning notice will not save the lease.

Maris (the landlords) leased premises to the Club (the tenants) on a 99 year lease in 1979. The tenants had responsibility for maintaining the premises in good order. By 1996, the premises had fallen into disrepair and attempts by the landlords over the years to have the repairs done by the tenants had been unsuccessful – largely due to a lack of funds on the part of the tenants. A schedule of dilapidations with a warning letter was served on the tenants in November 2003. The warning gave the tenants notice that the lease would be irritated (that is, terminated) if the works required were not carried out within three months. Almost nothing was done within the three months so the landlords terminated the lease. The landlords then brought an action to declare the lease had been terminated and to remove the tenants from the premises. In November 2005, at the end of a hearing, the court found that (1) the works were required; (2) three months was a reasonable period for carrying them out; and (3) a fair and reasonable landlord would terminate a lease on these grounds. Before this, however, between the raising of the action in February 2004 and July 2005, the works had been carried out, following a donation of funds to the tenants. The tenants therefore appealed, arguing that the “fair and reasonable landlord” provisions in the Law Reform (Miscellaneous Provisions)(Scotland) Act 1985 required the court to consider the whole circumstances at the time when the court was declaring the lease to have been terminated i.e. November 2005 (and not at the time when the landlords sought to terminate the lease contractually i.e. February 2004). The appeal was refused – it was held that the sheriff was entirely correct to take February 2004 as the appropriate time to apply the “fair and reasonable landlord” test. The court action brought was simply a means of establishing judicially that at an earlier date the lease was validly terminated.

Sheila Webster , Partner, and Head of our Property Dispute Resolution Team comments:

I doubt any property litigation solicitor would expect any different result here. If the obligation had been a financial one, there is no question that payment after the date stated in the warning notice would not have been enough to dodge termination of the lease. That has clearly been found to be the law in the past. It would have been curious if the court had found that the situation differed when the obligation breached was not a monetary one. That said, the argument turned on what the court may consider when applying the test of a fair and reasonable landlord. The litigation lawyer’s refrain – you have to consider “all the circumstances of the case” – means the test is wide, and past case law had suggested that it was conceivable it could include events that had happened after the period stated in the warning notice had expired. That would, however, give rise to huge uncertainty for landlords – they could be left not knowing whether a lease had been terminated until years of litigation had been completed.

It is important to remember that it is not the court that terminates the lease; it is the landlord acting under the lease contract. All the court does is to confirm (in the case of dispute) that the termination procedure has been correctly carried out, and, where necessary, order the removal of the tenant. Compliance with formal notices requiring payment of sums due under a lease, or requiring a tenant to comply with some other obligation, within the time limit specified, is critical. Where there is doubt about whether there is an obligation to do what is requested, early advice should be sought to avoid problems. Provided the termination procedure has been correctly carried out, there may be little a lawyer can do to help if the obligation (financial or otherwise) has not been complied with in the time limit stated, and the lease has then been terminated.

Case referred to: Marinus Charles Maris and Mrs Roxanne Maria Sloane-Maris v Banchory Squash Rackets Club Limited [2007] CSIH 30 VA60/06.

A full text of the decision is available on the Scottish Courts website accessible here.

News

Strategic planning around cities

Proposals for four new Strategic Development Planning Authorities in Scotland's largest city regions have been announced by the Scottish Government. The new authorities, part of the overall modernisation of the planning system, would be established for Aberdeen, Dundee, Edinburgh and Glasgow, working across boundaries to shape long-term strategies for growth and environmental protection. Detail of the proposals and how these new authorities should work together can be accessed here.

In addition, the Government has published the second and latest edition of the National Planning Framework (NPF) newsletter. It reports on feedback from the meetings that the NPF Team have been holding with stakeholders and interest groups on the scope and content of the Framework and reports on the comments received on the Small Country, Big Plans leaflet campaign. This is now available on the Scottish Government’s Planning website accessible here.

HM Treasury has issued a discussion paper including draft regulations and other proposals for implementing the tax regime for Property Authorised Investment Funds (PAIFs). The main object of the proposals is to move the point of taxation from the PAIF to the investor. This would mean that investors would face broadly the same tax treatment on income from a PAIF as they would if they received either property rental income or a distribution from a UK Real Estate Investment Trust (UK-REIT). The discussion paper is accessible here.

Companies capable of corporate killing

A new law which creates the statutory offence of corporate homicide in Scotland and corporate manslaughter in England, Wales and Northern Ireland will come into force on 26 July 2008.

The Corporate Manslaughter and Corporate Homicide Act 2007 is aimed at just about every type of business and property owning and developing companies must be aware of its reach.  Almost all companies, (large and small), public and private will be subject to scrutiny by the prosecuting authorities if “gross breach” of a “duty of care” by the organisation causes a person’s death.

What amounts to a “gross breach” will be a matter for a jury to decide having heard evidence on the alleged conduct of the company, which may have fallen far below what could reasonably have been expected of it in the circumstances. Key factors will be whether or not the company has complied with health and safety legislation and whether its “safety culture” (its policies and practices on health and safety) were apt to encourage a disregard for or tolerance of non compliance with health and safety requirements.

It will be for the judge to decide whether or not the company owed a duty of care to the deceased. However the duty of care will be owed by a company (1) to its employees; (2) to persons on property occupied by it; (3) whilst it is carrying out construction and maintenance obligations; and (4) whilst it is engaged in any other commercial activity.

Organisations will face unlimited fines, remedial orders and publicity orders if they are found guilty of this new offence. 

With new guidance on health and safety expected from the Institute of Directors, health and safety issues must become a priority if organisations are to avoid prosecution for this new offence.

If you require advice on your obligations as a company operating in the property sector under health and safety legislation do not hesitate to contact us. The new Corporate Manslaughter and Homicide Act 2007 can be accessed here.

SEPA to set out sewage contribution

SEPA is currently drafting a policy on Development Planning and the Environment. The move has been prompted by the introduction of The Water Environment (Controlled Activities) (Scotland) Regulations 2005 and the clarification, in the form of the Provision of Water and Sewerage Services (Reasonable Cost) (Scotland) Regulations 2006, that developers are expected to provide the remaining investment required to allow the drainage of new developments via the public sewerage system (above the reasonable costs contribution from Scottish Water).

The Policy is likely to reflect the Position Statement issued in September 2006 which sets out SEPA’s policy principles on the provision of waste water drainage both within and outwith settlements served by a strategic sewerage system.

The Position Statement contains a set of eight policy principles which together provide a guide to the likely response from SEPA when it is consulted, during planning, on a development proposal. Details of the principles can be accessed here.

RICS to launch new service charge code

A new service charge code for Scotland will by launched by RICS on 11 th September 2007. The code promotes four objectives for service charges: (1) that they should no longer be an area of conflict between landlords and tenants; (2) that they should be set up on a “not for profit not for loss” basis; (3) that they should be cash neutral to landlords’ income streams; and (4) that there should be transparency and communication between landlords and tenants.