Inner House case in which Tesco sought to challenge a decision by Perth and Kinross Council to agree to the removal of a condition contained in a section 75 agreement made with Sainsbury’s.

 The s75 agreement was ancillary to a grant of planning permission allowing Sainsbury’s to construct a large store on a site in Perth to the southwest of the junction between the A9 and A85. There was known to be traffic congestion in the vicinity of the proposed development and Sainsbury’s had put forward a number of proposed road traffic “mitigations” in order to ensure that the new superstore would cause “no net detriment” to the road network. In terms of clause 5 of the s75 Agreement, Sainsbury’s agreed to pay a traffic mitigation sum before it commenced work on the development.  Clause 6 of the Agreement contained a trading restriction to the effect that the new superstore should not open for trading until such time as the Council had let the contract for the construction of the road improvement works.

There was some slippage from the original timetable for the carrying out of the road improvement works which meant that it would not be possible for the Council to let the contract for the construction of the works when originally envisaged. This led to the possibility that Sainsbury’s would end up in the position of having completed the development but be unable to open for trading because of a delay in the letting of the road construction contact.

As a result, Sainsbury’s applied to, and obtained from the Council, a modification of the s75 agreement deleting clause 6 of the agreement.

Tesco (the owner of a nearby store) argued that, in allowing the modification, the Council had:

1. failed properly to interpret its own development plan;
2. failed to address a material issue, namely whether clause 6 was still necessary and/or still served a useful purpose;
3. failed to give adequate or intelligible reasons for its decision and/or had no factual basis for key parts of its decision; and/or
4. reached a decision that no reasonable planning authority could have reached.

The Inner House rejected all of those arguments and refused Tesco’s petition.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Sheriff Court case in which Ms Strickland raised an action under section 25 of the Conveyancing and Feudal Reform (Scotland) Act 1970 seeking damages from Blemain Finance on the basis that it failed to sell a repossessed property for the best price that could reasonably have been obtained.

Background
Blemain sold the property for £150k after it had been on the market for 12 weeks. After hearing evidence from a charted surveyor to the effect that if Blemain had marketed the property for a longer period a price of £175k could have been obtained, the sheriff concluded that a price of £160k could have been obtained over a further 3 months and awarded damages of £10k. The sheriff made no award with regard to interest on the basis that, the sale of the subjects had resulted in a shortfall of just over £10k with respect to Ms Strickland’s debt to Blemain and the outstanding balance of the debt had nonetheless been frozen by Blemain. (The sheriff taking the view that, after the sale, Blemain’s wrongful withholding of £10k –through its failure to obtain the best price- was eliminated by the fact Ms Strickland was not called upon to make interest payments on the outstanding debt.)

Ms Strickland appealed on the basis that:

1. despite accepting the surveyor’s evidence that a sum greater than £150k ought to have been achievable with more time, when it came to quantification of the increased sum, the sheriff had, for no cogent reason, departed from the surveyor’s evidence; and
2. having specifically precluded consideration of the shortfall for the purposes of determining the principal sum due to Ms Strickland, the sheriff had then taken the existence of the shortfall into account when considering whether an award of interest should be made.

Decision
The sheriff principal refused the appeal in relation to the damages due in respect of the failure to obtain the best price but allowed the appeal on the question of interest.

Best price
With regard to calculation of the damages in respect of the failure to obtain best price, the sheriff had articulated his reasons for the selection of a lesser figure (the fact that there had been no competing offer at the time the offer of £150k had been made, the effect of the recession and the existence of adverse feedback about the condition of the property).

The sheriff principal also took the view that he should be slow to interfere with the sheriff’s decision unless it could be demonstrated clearly, that he had misunderstood the facts, applied the wrong principles or arrived at a conclusion which was manifestly unjust and was not persuaded that any of these features had been made out. In coming to this decision the Sheriff Principal noted that this was a case in which the parties had agreed to dispense with shorthand notes (and, consequently, no transcript of the evidence was available for the purposes of the appeal) and that the sheriff had the advantage of having seen and heard the witnesses involved and had had the opportunity to consider the evidence in its totality.

Interest
On the other hand, the sheriff principal found Ms Strickland’s arguments regarding interest to be well founded: the shortfall having been specifically left out of account by the sheriff, at the request of parties, it was not then open to him to reintroduce it into the case when it came to the question of interest.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

The issue
Inner House case in which RBS sought payment of sums due under a personal guarantee granted by Mr O’Donnell and Mr MacDonald the directors of Whinhill Developments Ltd which had been formed to purchase a potential development site at Stone Farm in Greenock. The directors argued that the guarantee had been induced by negligent misrepresentations made on behalf of RBS.

The background
RBS and Whinhill entered a one year loan agreement in September 2007 whereby RBS would provide a loan of £1.65m to fund the purchase. Whinhill bought the site for about £1.5m and planned to obtain planning permission then sell the site to a builder or developer. Whinhill granted a standard security and floating charge in favour of RBS (the site being Whinhill’s only asset).  Whinhill were unable to repay the loan at its expiry in September 2008. The parties then agreed to refinance the loan facility with a new loan of £1.695m to be repaid by March 2011; the Whinhill directors providing a personal guarantee for the company’s liabilities to a maximum aggregate value of £300k.

Whinhill failed to repay the sums due after a default event occurred and RBS sought payment of the sums due under the guarantee in February 2011. Central to the case was the property crash in 2008 and the falling value of the property. The loan was originally advanced in mid-2007 on the strength of a market valuation of £3m. When the facility was refinanced in 2008, property values had “fallen off a cliff” and the credit division of RBS was enforcing a 70% loan to value ratio. However, Whinhill’s relationship director in RBS’s commercial banking division was keen to avoid the crystallisation of, what may have been by then, a worthless security. He received word from Ryden that the property could be valued at £2m which, with a personal guarantee from Whinhill’s directors, would allow the 70% loan to value ratio to be met.

On three separate occasions RBS told the directors that Ryden would or had re-valued the subjects at £2m. The directors had understood the revaluation could be relied on for lending and guarantee purposes and, in the Outer House, Lord Malcolm took the view that it was reasonable for them to do so. Shortly after the first occasion (but before the second), RBS’s relationship director received the updated valuation from Ryden by letter. However, the letter made it clear that the report was not suitable, nor to be relied on by the bank, for lending purposes (it was also based on an assumption of increased development density which had not been discussed with the Whinhill directors). The directors were not informed of this and there was no evidence that the report had been received by the directors who then granted the personal guarantee in favour of the bank.

The decision
In the Outer House Lord Malcolm found that the RBS statements were material factors in the directors’ decision to grant the guarantee and that the guarantee would not have been granted if they had been aware of the true position. As a result, a reduction of the guarantee was granted.

Whether the Whinhill directors were also entitled to damages for their losses depended on whether the misrepresentations amounted to a breach of a duty of care owed to them. Lord Malcolm found that, in using the assurance given by Ryden before receipt of the report to help persuade the Whinhill directors to agree to the guarantee, the relationship director had to be taken as having assumed responsibility for its accuracy. He then came under an obligation of enquiry or disclosure if he subsequently received material which cast doubt on the information given to the directors. And thereafter, he had a duty not to repeat the misrepresentation. The relationship director had breached that duty and the Whinhill directors were entitled to damages for loss sustained as a consequence.

The Inner House were in agreement with Lord Malcom’s findings and refused an appeal.

The full judgement is available here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

John Swinney has announced the proposed rates and bands for the Land and Buildings Transaction Tax (LBTT) as part of the Draft Budget.

LBTT will replace Stamp Duty Land Tax (SDLT) in Scotland on 1 April 2015.  The new tax will have a progressive structure to bands and rates (i.e. tax is charged on the proportion of the price exceeding the threshold (like income tax) rather than charging the higher rate of tax on the whole price (per SDLT). This approach is intended to remove the distortions in house prices which may result from the bunching of sales around the thresholds that can occur with SDLT. 

Residential Purchases
The rates and bands which apply to the purchase of residential properties are as follows: 

Non-Residential Purchases
The rates and bands which apply to the purchase of non-residential properties are as follows:

.

Non-Residential Leases
The rates and bands which apply to non-residential leases are as follows (as with SDLT, the rates are applied to the Net Present Value (or NPV) of the rent payable under the lease):

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The following tax rates and bands will also be applied to any premium payable under the lease:

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Further information and tax calculators are available from the Scottish Government here.
A summary of the Land and Buildings Transaction Tax (Scotland) Act 2013 is available here.

Submission by James Aitken of Legal Knowledge Scotland

I refer to your requests for submissions.

By way of background I was involved in previous ‘fiscal powers’ submissions to the Calman Commission on behalf of the Law Society of Scotland and Reform Scotland and I am also one of the authors of Reform Scotland’s ‘devo plus’ proposal.

I am a partner in and a co-founder of Legal Knowledge Scotland.  Legal Knowledge Scotland is a provider of legal knowledge in various forms.  I am a solicitor who has practised in Scotland, England & Wales and Illinois.  I am also the immediate past Convener of the Scottish Borders Chamber of Commerce.

I would like to start with a comment.  It is not clear if your remit is to recommend the devolving of powers that when taken together would be considered to be what has been termed ‘devo max’.  It is generally accepted that ‘Devo max’ effectively means the devolving of all tax and welfare powers to the Scottish Parliament.  Alternatively you may consider your remit to be to simply recommend a few additional powers along the lines of those already proposed by the ‘NO’ parties.

The reason for the lack of clarity is of course the failure to use clear language by those advocating this position in the event of a ‘NO’ vote.  That lack of clarity I suspect was intentional.

In any event, I would argue that your remit is to recommend the devolving of substantial and extensive powers to the Scottish Parliament by May 2016.

The timetable for the devolving of these recommended powers will I suspect also be the cause of some debate.  The date of May 2016 is though quite clear when you consider the ‘timetable’ outlined by former UK Prime Minister Gordon Brown and the claim that these powers would be in place before the powers that would have accrued under independence.

To begin.  There are over 25 UK taxes, charges and duties and presently the Scottish Parliament only has control of 2 minor taxes and partial control of income tax.  This increases to 4 minor taxes and slightly more control of income tax when the Scotland Act 2012 is fully implemented.  This means there is huge scope for devolving substantial new tax powers to the Scottish Parliament.

The major taxes are more problematic both in political terms and complexity and I suspect will be only considered by you if are seriously looking at devolving powers that are akin to ‘devo max’.  The major taxes being income tax, National Insurance and North Sea revenue.  Control of VAT cannot be devolved to the Scottish Parliament.

I will therefore concentrate on what I term the ‘minor taxes’.

Devolving control of the so called minor taxes is a relatively straightforward matter as has been shown by the devolving of control of stamp duty land tax and landfill tax under the Scotland Act 2012.  The creation of Revenue Scotland also means that the Scottish Parliament will soon have its own tax authority to administer newly devolved taxes.

There are numerous advantages associated with devolving the undernoted minor taxes and associated areas of law.

This would this quickly give the Scottish Parliament control of a much broader range of taxes.  Approximately 20 taxes.  This is important as taxes cannot be looked at in isolation if you are trying to develop policy.  For example SDLT and capital gains tax or inheritance tax and income tax and capital gains tax.

That is one of the main reasons for devolving these taxes.  The fact that they are so closely associated with matters already devolved to the Scottish Parliament.  The devolving of these taxes would give the Scottish Parliament the opportunity to develop policy much more effectively.

In addition this would also increase substantially the number of economic levers available to the Scottish Government and the Scottish Parliament and greatly increase the amount of revenue it is responsible for raising.  The increase wold be approximately £6bn.

Some examples:

• Property law is devolved but SDLT (not until 2015), capital gains tax and inheritance tax are not.  Devolve control of capital gains tax, inheritance tax and the Crown Estate.
• Succession law is devolved but inheritance tax and capital gains tax are not.  Devolve control of inheritance tax and capital gains tax.
• Environmental law is devolved but not all the environmental taxes are.  Devolve control of climate change levy, air passenger duty and aggregates levy. 
• Health is devolved but alcohol and tobacco duties are not.  Devolve control of all alcohol and tobacco duties once any European Union issues are resolved.
• Transport is devolved but transport related taxes are not. Devolve control of fuel duty and vehicle excise duty.  

If you are indeed serious about devolving new major economic levers to the Scottish Parliament you will also have noted that companies are registered separately in Scotland but company law, employment and discrimination law, corporation tax, stamp duty on shares and SDRT are all reserved to Westminster.  Control of each of these areas of law and taxes should be devolved to the Scottish Parliament plus control of insurance premium tax and betting and gaming duties.

If you recommend that major welfare powers are devolved to the Scottish Parliament then control of National Insurance should also be devolved to the Scottish Parliament.  Devolve control of National Insurance to the Scottish Parliament.

If you recommend devolving control of broadcasting to the Scottish Parliament then control of the licence fee should also be devolved to the Scottish Parliament.   Devolve control of the licence fee to the Scottish Parliament.

Finally on tax simplification.  If you are going to recommend a tax for devolving, you should recommend that it is devolved in its entirety.   The main reason is that devolving partial control simply adds further complication to an already overly complicated tax system.  A tax with “two masters” poses obvious potential problems. A good example is the never ending tinkering with how much control the Scottish Parliament should have over income tax.  Also the underlying law, for example which reliefs apply may be just as important an economic lever as the headline rates.  Please also note that income tax is not just a personal tax but is a business and succession tax.  If you recommend that income tax should be devolved to the Scottish Parliament devolve all aspects of it including all underlying law.

Also on tax simplification.  OSCR should decide whether a Scottish registered charity is entitled to the associated tax advantages that comes from being registered as a charity and not HMRC.  The present system simply adds a layer of bureaucracy.  Devolve the responsibility for deciding the favourable tax status of Scottish registered charities to OSCR.

Lastly on tax simplification.  As with SDLT, the devolving of inheritance tax would simplify matters for the whole of the UK due to the complications that arise from having different laws of succession in the UK but a single inheritance tax.  This particularly applies to the required tax forms and guidance.

Please feel free to contact me further if you require further information on this submission.

Sheriff Court case in which HSBC sought to recover possession of a cottage in Lockerbie when the debtor defaulted in terms of a standard security over the property. The sole issue for the court was the reasonableness of the orders sought by HSBC. (In terms of the Conveyancing and Feudal Reform (Scotland) Act 1970 the Court can only grant an order allowing the creditor to exercise its remedies  where the court considers that it is reasonable in the circumstances to do so.)

At first instance the sheriff granted the orders sought by HSBC allowing them to take possession of the property. In coming to his decision the Sheriff took account of two proposals made by the debtor to make repayments to HSBC. Both of the proposals required HSBC to compromise the sums due by over £100k (the debtor’s total indebtedness amounted to over £400k). Although HSBC did not make any counter proposals, the sheriff noted the lack of financial information provided by the debtor and the late stage in the proceedings that the proposals for payment were made (the week of the hearing) before finding that it was reasonable to grant the application in favour of HSBC.

The Sheriff Principal refused an appeal of that decision.

“As at present advised, although two separate offers have been made, there is no information before the court as to how these offers would be funded. There is no statement of assets. There is no statement of income and expenditure. There is [no] document from a source which would provide funding to allow the indebtedness to be obtempered. There is no assurance available to the respondent that funds would be available on the dates set out by the appellants. It cannot be said that it would be reasonable in these circumstances for the respondent to accept either of the offers which have been made. They are wholly unsubstantiated

The sheriff’s decision was one which he was entitled to make in the exercise of his discretion in light of all the information before him.  The appeal fails.”

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Background
Inner House case concerning a lease of property on Kelvinhaugh Street in Glasgow. (The subjects were greater than two acres in extent and were the subject of a probative lease). The natural term of the lease had come to an end (on 27 February 2012) and the lease continued by tacit relocation. By letters dated 3^rd and 16^th of January the tenants gave notice to the landlords that the lease was to terminate at 27^th February 2013. The tenants argued that in doing so they had complied with the requirement, at common law, to provide 40 days clear notice of the termination.

Arguments
However the landlords argued that the situation was governed by s34 of the Sheriff Courts (Scotland) Act 1907 which deals with removings and provides that notice requires to be given 6 months before termination.

In the sheriff court the sheriff agreed with the tenants’ interpretation and the landlords appealed.

Decision
In the Inner House the appeal was refused. The court found that s34 applies to the situation where the landlord initiates the termination process but not where the tenant initiates the process. This was in contrast to s35 which provides for the situation where the tenant initiates the termination and preserves the common law position on the giving of notice. As such the common law applied and a period of 40 days’ notice was sufficient to terminate the lease.

“… [W]e have reached the view that the submissions for [the tenants] are sound, and that the sheriff’s analysis and conclusions were correct.  The structure of sections 34-37 of the 1907 Act makes a clear distinction between a landlord’s notice in writing to remove and a tenant’s letter of removal.  The first proviso to section 34, which requires not less than 6 months’ notice before the termination of the lease, relates to a notice in writing to remove.  It relates to termination initiated by the landlord, and not termination initiated by the tenant.”

As to the contrasting approaches of s34 and s35, the court noted the element of additional protection provided for the tenant when the landlord exercises the remedy of ejection without independent judicial termination (which is not required when the tenant initiates the procedure).

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Inner House case considering a planning appeal in respect of an application for the development of a waste to energy combined heat and power plant in Invergordon.

The Reporter determining the appeal had granted permission subject to a number of conditions, one of which permitted the power plant to accept a maximum of 100,000 tonnes per annum of waste originating from within the Highland Council area.  However, the condition also stated that a proportion of the waste could originate beyond the Highland Council area.

The Inner House found that the condition was invalid as the reference to the waste from outwith the Highland Council area meant that the permission granted went beyond that which had been applied for (the application had provided for incineration of Highland waste only) and thus beyond what had been considered at the planning inquiry. The developer’s Environmental Impact Assessment had also been drawn up on the understanding that only Highland waste was to be treated at the plant. All of this meant that the planning authority (Highland Council) and the Ross Estates (objectors) had been disadvantaged and their appeal on that basis was held to be well founded.

The court found that the invalid condition was not severable from the rest of the planning decision (on the basis that the planning permission may not have been granted at all if it had been appreciated that the condition was invalid) and so it was not possible to quash only that condition. However, whilst the planning inquiry required to be re-opened, it was unnecessary to rehear the entire case and the inquiry would only have to deal with the invalid condition. If the reporter considered that the condition was essential to the grant of permission he would have to hear evidence and submissions from all of the parties on its merits. If the reporter were to consider the condition, as drafted, not to be essential to the permission, then it was open to him to substitute an amended condition.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Background
Outer House case relating to the lease of commercial premises in Port Glasgow. @SIPP were the landlords and Insight, the tenants. @SIPP argued that, when the lease came to an end, the premises were not in good and substantial condition and a dispute arose as to the extent of the tenants repairing obligations under the lease.

There were two issues for the court to decide.

• Whether the tenants’ obligation on termination of the lease was limited to putting the premises into the condition in which they were accepted by it at the commencement of the lease.
• Whether the landlord was entitled to payment of a sum equal to the cost of putting the premises into the relevant state of repair, regardless of whether it actually intended to carry out any such work.

Decision
Putting and keeping
Lord Tyre began by rejecting @SIPP’s contention[1] that an obligation to keep the premises in good and substantial repair necessarily imports an obligation to put the premises in that condition regardless of its condition at the commencement of the lease. Then, taking a modern approach (which requires the court to consider what a reasonable person would have understood the parties to have meant by the language they used, rather than necessarily imposing interpretation which is grammatical result of the language used) to construction of the relevant clause, Lord Tyre found that the tenant’s obligation was referable to the condition in which they were accepted at the commencement of the lease (and not the condition in which they were deemed to have been accepted).

Remedy for breach of the repairing obligation
Where a tenant breaches its obligation to return the premises to the condition specified in the lease at the end of the term, the landlord is entitled to common law damages for the loss sustained. The landlord will normally argue that that loss amounts to the cost required to put the premises into the specified condition. However, that will not be the measure of the loss in all cases. In some cases the proper measure of loss may be the diminution in the capital value of the subjects[2] and in some cases, for example where the building is to be demolished (for reasons unconnected with the tenant’s breach), the landlord may be unable to show any loss at all.

In this case @SIPP argued that the relevant clause in the lease provided an express right to payment of a sum equivalent to the cost required to put the premises into good and substantial repair and that in exercising that contractual right it was not making a claim for damages for its loss.

However, Lord Tyre found that there was nothing in the relevant clause compelling the interpretation favoured by @SIPP. In the view of Lord Tyre, a lease would require very clear wording to allow a conclusion that the tenant had to pay a sum which bore no relation to that required to compensate the landlord for the loss actually sustained as a result of a breach of the repairing obligation.

As such, Insight were entitled to prove that @SIPP’s loss was equivalent something other than the cost of repair and the case was put out by order for discussion as to further procedure[3].

The full judgement is available from Scottish Courts here

(NB see appeal to Inner House appeal here)

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

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[1] This argument was based on the judgment of the Supreme Court in L Batley Pet Products Ltd v North Lanarkshire Council[2014] UKSC 27, however, Lord Tyre found that the reference to putting/keeping the property in good condition related to a commentary on the particular clause used in that case rather than making a general statement/change as to the law.

[2] In this case the estimated cost of the works required was over £1m whereas Insight argued that even if it had carried out all of the works in the schedule of dilapidations, the capital value of the premises would only have increased by £175k.

[3]The question of whether @SIPP would be entitled to recover the cost of the repairs if it could prove an intention to carry out the repairs regardless of the extent to which the cost of the repairs would exceed the increase in capital value of the subjects was left open.

Sheriff court case relating to a lease of premises on Buchanan Street in Glasgow. ELB were the Landlords and Prestwick Hotels Ltd, the tenants.

Background
Prestwick were dissolved in June 2013 and then restored to the register of companies in October 2013. In terms of the Companies Act 2006[1] when a company is dissolved its property (including leasehold property) falls to the Crown as bona vacantia and the Crown must then decide whether or not to disclaim the property. In this case the Crown opted to disclaim the property which (in terms of s1020 of the 2006 Act) had the effect of terminating the lease.  ELB therefore sought to recover possession of the subjects from Prestwick.

The crux of the case was the meaning of s1032(1) of the Companies Act 2006 which provides:

 “The general effect of an order by the court for restoration to the register is that the company is deemed to have continued in existence as if it had not been dissolved or struck off the register.”

Arguments
Prestwick argued that the effect of this section was that when it had been restored to the register all matters reverted to the pre-dissolution status quo to the extent that bona vacantia no longer applied to the premises. As such the lease continued and there was no foundation for ELB’s action to recover possession of the premises. The sheriff agreed with those arguments and dismissed ELB’s action.

Decision
However, on appeal, the sheriff principal recalled the sheriff’s decision and found that ELB were entitled to recover possession of the premises. In coming to this conclusion the sheriff principal took account of the uncertainty which would result if the restoration of the company were also to restore the lease. In terms of s1030(4) of the 2006 Act a company can be restored to the register up to 6 years after it has been dissolved. Thus if, for example, a landlord recovered possession of the premises following a dissolution and let it to another tenant, following Prestwick’s reasoning, the new tenant would cease to have any rights to the premises, if (at any point during the 6 year period) the original tenant were restored to the register.

As such, the sheriff principal found that Parliament did not intend that 1032(1) should operate so as to re-write history in an unrestrained manner and that the specific provisions contained in s1020 relating to the termination of the lease should prevail over the general effect of s1032.

With regard to the effect on Prestwick the sheriff principal said the following:

“My decision might be seen as somewhat harsh in so far as [Prestwick] are concerned.  However, I would reject any such criticism.  Firstly, in general terms, the construction placed upon the provisions of the 2006 Act simply serves to highlight the importance to be attached to proper compliance with features such as the regular and timeous lodging of company accounts etc.  Dissolution of a company is rightly associated with very significant consequences not only for the company itself but also for other parties with whom they have contracted.”

The full judgement is available from Scottish Courts here.

(See appeal to Inner House here.)

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

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[1] Section 1012