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	Scottish Law Commission (Reports)
You are here: BAILII >> Databases >> Scottish Law Commission >> Scottish Law Commission (Reports) >> Conversion of Long Leases (Report) [2006] SLC 204(10) (December 2006) URL: http://www.bailii.org/scot/other/SLC/Report/2006/204(10).html Cite as: [2006] SLC 204(10)

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PART 10: LIST OF RECOMMENDATIONS

PART 2: QUALIFYING LEASES

1. The right of a tenant under an ultra-long lease should be converted into a right of ownership, and the right of the landlord should correspondingly be extinguished.

(Para 2.12; Draft Bill s 3)

2. A lease should qualify for conversion in respect of duration if it –

(i) was granted for more than 175 years, and

(ii) has an unexpired duration of more than 100 years.

(Para 2.21; Draft Bill s 1(2)(b), (c))

3. For the purposes of determining the duration of a lease -

(a) there should be included

(i) any renewal period which the landlord is bound to grant, and

(ii) the duration of any other lease which is to run consecutively with the current lease;

(b) any provision enabling the lease to be terminated early should be disregarded; and

(c) any reference to the lifetime of a tenant should be calculated as –

(i) the years during which the person survived after first becoming tenant, if known, or

(ii) if the tenant is alive, the years for which the person is likely to be tenant, having regard to a statutory table of life expectancy, or

(iii) in any other case, 35 years.

(Para 2.30; Draft Bill s 60(1)(a)–(d))

4. A lease should qualify for conversion only if it is constituted as a registered real right.

(Para 2.31; Draft Bill s 1(2)(a))

5. A lease should not qualify for conversion if it is –

(a) a lease of minerals; or

(b) a lease –

(i) of land or a right in land which, by its nature, cannot be owned separately from other land, and

(ii) the lease does not include that other land.

(Para 2.44; Draft Bill ss 1(2) and 68(1))

6. Where, in the case of any land, more than one lease satisfies the criteria set out in recommendations 2 – 5, the qualifying lease should be whichever is the sublease of the other or others.

(Para 2.45; Draft Bill s 2)

Part 3 Conversion

7. Except where a tenant opts out of conversion by registration of a notice of exemption, conversion of a qualifying lease should be mandatory.

(Para 3.8; Draft Bill s 3)

8. On a day to be appointed (the "appointed day") there should be automatic conversion of all qualifying leases.

(Para 3.13; Draft Bill s 3)

9. For the purposes of the scheme a lease is converted by becoming the ownership of the land.

(Para 3.22; Draft Bill s 3(1)(a))

10. There should be extinguished on the appointed day –

(i) the landlord's ownership, and

(ii) any lease intermediate between that ownership and the qualifying lease.

(Para 3.24; Draft Bill s 3(1)(b),(c), (2))

11. (a) Following conversion, ownership of the land should be subject to –

(i) the subordinate real rights that formerly affected the qualifying lease, and

(ii) the subordinate real rights, other than any right in security or proper liferent, that formerly affected the land itself.

(b) There should be extinguished on the appointed day all rights and obligations arising under the qualifying lease or any intermediate lease; and on or after that day –

(i) it should not be possible to bring new proceedings for enforcement;

(ii) any current proceedings should be deemed abandoned; and

(iii) any decree or interlocutor already pronounced should be deemed reduced.

(c) Paragraph (b)(i)–(iii) should not affect –

(i) a right to the payment of money or the recovery of damages; or

(ii) any right or obligation which continues after the appointed day.

(d) No qualifying or intermediate lease may be terminated by irritancy after the date that the legislation implementing this recommendation receives Royal Assent.

(Para 3.30; Draft Bill s 4(1), (3)–(5), s 5(1)–(4), s 61)

12. (a) Following conversion, ownership of the land should –

(i) include any pertinents (express or implied) of the lease but

(ii) exclude any rights reserved (expressly or by implication) from the lease.

(b) Paragraph (a) does not apply to a right which –

(i) can be a pertinent of a lease but not of the land;

(ii) can be reserved from a lease but not from ownership of the land.

(c) This recommendation is subject to recommendation 27.

(Para 3.33; Draft Bill s 5(5))

13. Following conversion, ownership of the land should be subject to or, as the case may be, include as a pertinent such servitudes as would have existed if –

(i) the qualifying lease and any superior lease, and

(ii) any partial assignation of such leases,

had been dispositions to the effect of conveying ownership but otherwise expressed in the same terms.

(Para 3.41; Draft Bill s 6)

Part 4 From Leasehold Conditions to Real Burdens

14. (a) A condition affecting a qualifying lease should qualify for conversion into a real burden (as a "qualifying condition") if –

(i) its terms are set out in full in the constitutive deed;

(ii) it binds successive tenants; and

(iii) it conforms to real burdens in respect of content.

(b) But a condition should not qualify if –

(i) it imposes a monetary penalty on the failure to comply with other conditions;

(ii) it imposes an irritancy for such failure to comply; or

(iii) it is stated to be enforceable only by irritancy.

(Para 4.17; Draft Bill ss 9(1), (3)–(6) and 10)

15. The following deeds should be constitutive deeds for the purposes of recommendation 14 –

(i) the qualifying lease;

(ii) any superior lease;

(iii) any deed varying such a lease; and

(iv) an assignation of such a lease or a deed of conditions or other deed granted in association with such an assignation.

(Para 4.27; Draft Bill s 9(2))

16. (a) A qualifying condition which regulates the maintenance, management, reinstatement or use of a facility should become a facility burden on the appointed day.

(b) The burdened property should be the land the lease of which was subject to the condition.

(c) The benefited property should be –

(i) any land to which the facility is (and is intended to be) of benefit; and

(ii) insofar as not covered by (i), the facility itself.

(d) A condition should not become a facility burden if it constitutes an obligation to maintain or reinstate which has been assumed by a local or other public authority.

(Para 4.33; Draft Bill ss 23(1), (3), and 27)

17. (a) A qualifying condition which relates to the provision of services to other land should become a service burden on the appointed day.

(b) A qualifying condition which confers on a person power to act as, or to appoint, the manager of related properties should become a manager burden on the appointed day.

(c) A qualifying condition which –

(i) has the purpose of preserving or protecting the architectural, historical or other special characteristics of land, and

(ii) is enforceable by a conservation body or by Scottish Ministers

should become a conservation burden on the appointed day, but only if there has been registered before that day a notice identifying the condition and the body entitled to enforce it.

(d) A qualifying condition which –

(i) has the purpose of preserving or protecting the architectural, historical or other special characteristics of land, and

(ii) is enforceable by a person other than a conservation body or Scottish Ministers

should become a conservation burden on the appointed day, but only if there has been registered before that day a notice identifying the condition and nominating (with the prior consent of the nominee) a conservation body or Scottish Ministers to have title to enforce the conservation burden.

(e) A qualifying condition which comprises a right of pre-emption or a right of redemption should become a personal pre-emption burden or, as the case may be, a personal redemption burden on the appointed day but only if there has been registered before that day a notice identifying the condition.

(f) A qualifying condition which –

(i) has the effect of promoting economic development, and

(ii) is enforceable by Scottish Ministers or by a local authority

should become an economic development burden on the appointed day, but only if there has been registered before that day a notice identifying the condition.

(g) A qualifying condition which –

(i) has the purpose of promoting the provision of facilities for health care, and

(ii) is enforceable by Scottish Ministers

should become a health care burden on the appointed day, but only if there has been registered before that day a notice identifying the condition.

(h) In each case the burdened property should be the land the lease of which was subject to the condition.

(i) In the case of a service burden the benefited property should be any land to which the services are provided.

(j) A manager burden should be held by the person on whom power is conferred.

(k) A conservation burden should be held by the conservation body or, as the case may be, Scottish Ministers.

(l) A personal pre-emption burden or a personal redemption burden should be held by the person previously entitled to enforce the qualifying condition.

(m) An economic development burden should be held by the local authority, or as the case may be, Scottish Ministers.

(n) A health care burden should be held by Scottish Ministers.

(Para 4.41: Draft Bill ss 18, 19, 20, 21, 22, 23(2) and 24)

18. (a) A qualifying condition should become a real burden on the appointed day if, before that day, the landlord registers a notice in which other land belonging to him is nominated as the benefited property.

(b) The burdened property should be the land the lease of which was subject to the condition, and the benefited property the land so nominated.

(c) Normally land should not be eligible for nomination as the benefited property unless it contains a permanent building used as a place of human habitation and resort and lying within 100 metres of the burdened property.

(d) But land not complying with paragraph (c) above should be eligible for nomination if –

(i) the condition is a right of pre-emption or redemption;

(ii) the land is a separate tenement (such as minerals or salmon fishings) and the condition was conceived for the benefit of that land; or

(iii) paragraph (c) is waived by the Lands Tribunal on an application by the landlord.

(e) An application to the Lands Tribunal should be made not later than one year after the relevant provision comes into force; and the Tribunal should grant the application only if satisfied that, in the event of the condition being extinguished, there would be material detriment to the applicant as owner of the nominated land.

(Para 4.47; Draft Bill ss 13,15, 16 and 17)

19. (a) A landlord should be able to serve on the tenant a notice inviting the tenant to enter into an agreement for the conversion of conditions into real burdens.

(b) If an agreement is duly entered into and registered before the appointed day, on that day the conditions should become real burdens in respect of which –

(i) the burdened property is the land the lease of which was subject to the conditions, and

(ii) the benefited property is the land nominated in the agreement, being land which at the time of the agreement was owned by the landlord.

(Para 4.48; Draft Bill s 14)

20. (a) A qualifying condition expressed as being enforceable by the owner or tenant of other land should, on the appointed day, become a real burden in respect of which -

(i) the burdened property is the land the lease of which was subject to the condition, and

(ii) the benefited property is the other land.

(b) Qualifying conditions imposed under a common scheme on a group of related properties should, on the appointed day, become real burdens in respect of which each property is both a benefited and a burdened property.

(c) Where, before the appointed day –

(i) a lease was assigned in part, and

(ii) a qualifying condition was imposed in, or in association with, the assignation

the cedent and his successors as tenants of the retained land should have title to enforce the condition and accordingly should be able to convert the condition into a real burden by a notice in accordance with recommendations 17 and 18 or by an agreement under recommendation 19.

(Para 4.55; Draft Bill ss 12(3), 25 and 26)

21. Where a notice or agreement has been registered under recommendations 17, 18 or 19 it should not be possible to register another notice or agreement in relation to the same condition unless the earlier notice or agreement has been discharged and the discharge registered.

(Para 4.59; Draft Bill s 30(1) and (2))

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

(b) A separate notice should be used for each property.

(Para 4.63; Draft Bill ss 30(3), (4) and 62)

23. (a) A notice or agreement should be registered against both the burdened property and (except where there is no such property) the benefited property.

(b) If property is subject to a qualifying lease, registration may be against either the interest of the tenant or the interest of the owner.

(Para 4.65; Draft Bill ss 13(6), (7), 14(7), (8), 18(4), 19(3), 20(3), 21(4) and 22(4))

24. (a) The Lands Tribunal should be empowered to make an order discharging or restricting a notice on cause shown.

(b) An extract of the order should be capable of registration, and on registration should take effect as respects third parties.

(Para 4.67; Draft Bill s 64)

25. The enforcement of a qualifying condition (now a real burden) after the appointed day should be subject to compliance with any obligation which, before that day, was the direct counterpart of the condition.

(Para 4.72; Draft Bill s 28)

26. Notwithstanding recommendation 11, there should not be extinguished any rights or obligations that are binding only on the original parties.

(Para 4.77; Draft Bill s 4(2))

Part 5 Minerals and Sporting Rights

27. (a) Where –

(i) a right to take game or fish for freshwater fish is reserved from a qualifying lease or a superior lease (whether expressly or by implication), and

(ii) before the appointed day the head landlord registers a notice preserving such right,

on that day the right should become a separate tenement in land.

(b) A right converted into a separate tenement should comprise a right of the same description, and be subject to the same terms and conditions as to its exercise and liability for damage, as specified in the lease from which it was reserved; and, if or to the extent that there is no such specification, the right should comprise an exclusive right (subject to the Ground Game Act 1880) to take –

(i) hares, pheasants, partridges, grouse, black game and ptarmigan, or, as the case may be

(ii) freshwater fish as defined in s 69(1) of the Salmon and Freshwater Fisheries (Consolidation) (Scotland) Act 2003.

(Para 5.23; Draft Bill ss 7 and 68(1))

Part 6 Compensation

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 the extent that, the rent under the lease is expressed other than in monetary terms.

(Para 6.16; Draft Bill ss 32, 35 and 36)

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.

(Para 6.21; Draft Bill ss 31(1)–(4) and 39(1), (2), (4))

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.

(Para 6.27; Draft Bill ss 33 and 38)

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.

(Para 6.38; Draft Bill s 40)

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.

(Para 6.47; Draft Bill ss 41–44)

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.

(Para 6.51; Draft Bill s 45)

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.

(Para 6.55; Draft Bill ss 31(2) and 39(2), (3))

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.

(Para 6.62; Draft Bill ss 45(2), 49, 52 and 68(1))

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.

(Para 6.69; Draft Bill ss 31(5), 39(5), 43(4) and 46)

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.

(Para 6.73; Draft Bill s 47)

38. The obligation to make a compensatory payment or additional payment should prescribe after five years.

(Para 6.74; Draft Bill s 50)

Part 7 Notices of Exemption

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.

(Para 7.9; Draft Bill ss 53, 54, 56 and 58)

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.

(Para 7.15; Draft Bill ss 57 and 58)

Part 8 Miscellaneous Topics

41. (a) It should be made clear –

(i) that any rectification of the Land Register which is required to take account of the legislation on leasehold conversion, or of anything done under or by virtue of that legislation, is not to be regarded as prejudicing any proprietor in possession, and

(ii) that there is no entitlement to indemnity under section 12 of the Land Registration (Scotland) Act 1979 as a result of any such rectification.

(b) But paragraph (a) should not apply insofar as the rectification involves the reinstatement of an encumbrance which was previously deleted.

(Para 8.6; Draft Bill s 67, sched 21, para 2(4))

42. (a) The Keeper should not be required to verify –

(i) that a copy of the notice has been duly served;

(ii) that, in the case of a notice under recommendations 17(c) to (g), or 18, or an agreement under recommendation 19, the conditions to be converted were enforceable by the landlord (or other person sending the notice);

(iii) that, in the case of such a notice or agreement, the conditions were still enforceable immediately before the appointed day;

(iv) that, in the case of a notice under recommendation 18, the benefited property contains a permanent building used as a place of human habitation and resort and lying within 100 metres of the burdened property;

(v) that, in a case where the 100 metres requirement was dispensed with by the Lands Tribunal under recommendation 18(d)(iii), the order of the Tribunal was preceded by an attempt to reach agreement under recommendation 19;

(vi) that, in the case of an agreement under recommendation 19, a preliminary notice was served in accordance with recommendation 19(a);

(vii) that, in the case of a notice under recommendation 17(f) and 17(g) the conditions to be converted were imposed respectively for the purpose of promoting economic development or the provision of facilities for health care; and

(viii) that, in the case of a notice under recommendation 27 that the sporting right was still enforceable immediately before the appointed day.

(b) Where a notice or agreement submitted for registration is rejected by the Keeper but is subsequently determined by the court or the Lands Tribunal to be registrable, it should be possible to register the notice or agreement late, but not later than –

(i) two months after the determination, or

(ii) such date as Scottish Ministers may prescribe

whichever occurs first.

(Para 8.13; Draft Bill ss 63 and 65)

43. Where –

(i) on the day falling one year before the appointed day a lease would qualify for conversion but for the fact that it has not been registered; and

(ii) registration subsequently takes place

the lease should be treated as a qualifying lease which has been exempted from conversion and accordingly the exemption should be capable of recall under recommendation 40.

(Para 8.18; Draft Bill s 55)

44. A transaction which results from the conversion of a qualifying lease into a right of ownership shall be treated as a land transaction which is exempt from charge to Stamp Duty Land Tax.

(Para 8.25)

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