This article was published in W. Green’s Property Law Bulletin number 134 in February 2015

Succession law meets land reform  

The Scottish Government recently announced its legislative programme for 2014/2015.

A major part of this programme concerns land reform. This certainly got the most attention when the legislative programme was announced in November.  Of particular interest to me was the fact that the Scottish Government also intend to modernise our law of succession.

Let’s start with what the Scottish Government said on land reform:

“Our new Land Reform Bill will take forward radical land reform and ensure Scotland’s land reform debate focusses on how Scotland’s land can be best managed in the public interest to ensure it is of benefit to all of the people of Scotland. The measures in our Land Reform Bill will be accompanied by a range of non-legislative action building on the excellent work of the Land Reform Review Group. Increasing the transparency of who owns Scotland will be a major theme throughout these actions, as we believe that transparency in itself can help create the conditions for on-going reform. That on-going reform will be secured through the establishment of the Land Reform Commission which will ensure than Land Reform is a continuing process.”

In addition the Scottish Government announced:

• an increase in the Scottish Land Fund to £10 million from 2016-20 to meet demand
• that it would develop a dedicated resource within the Scottish Government to promote and facilitate community land ownership across the whole of Scotland
• that the existing business rate exemptions for shooting and deer-stalking are to be withdrawn
• that it would modernise succession law so that all children are treated equally when it comes to inheriting land

As mentioned, my main interest lies in the proposed changes to our law of succession and that is what this article focusses on. With this in mind the Scottish Government also announced:

“Introduce a Succession Bill to ensure that the law in this area is fairer, clearer and more consistent. We also plan to consult in the coming year on further legislation on succession which will aim to radically overhaul the current law in this area. As part of this modernisation the distinction between movable and immovable property would be removed to give children, spouses and civil partners appropriate legal rights over both forms of property. This should ensure a just distribution of assets among a deceased’s close family to reflect both societal change and expectations. These changes will be an important aspect of our series of measures in respect of Land Reform.”

The Scottish Government has confirmed that this will be implemented in two stages.  The initial stage will implement a number of technical legal changes recommended by the Scottish Law Commission and widely supported by the legal profession. The first sentence of the above announcement is applicable here. These changes are not controversial and will receive widespread support.

The Scottish Government plans to complete the legislative process for these initial changes during 2015 having recently completed a statutory consultation process. The consultation can be found on the Scottish Government’s website.

These provisions include:

• removing the requirement for executors to obtain a bond of caution
• the closing of a number of jurisdictional gaps so that where Scots law is the applicable law, the Scottish courts will have jurisdiction
• reforming how wills may be rectified by the courts
• clarifying the effect of divorce, dissolution or annulment of a marriage or the birth of a child on a will

The second stage of the proposed reforms will be more controversial and will consider how our succession law might be reformed.  This will address such issues as:

• how an estate should be divided when the deceased did not leave a will
• what protection from disinheritance is provided to spouses/civil partners and children
• the entitlement of someone cohabiting with but not married to the deceased

A quick reminder of the part of the announcement that applies to this part of succession reform might be helpful at this point:

“We also plan to consult in the coming year on further legislation on succession which will aim to radically overhaul the current law in this area. As part of this modernisation the distinction between movable and immovable property would be removed to give children, spouses and civil partners appropriate legal rights over both forms of property.”

The ‘current law’ reference includes legal rights. Before I look at what this might mean in practice a brief reminder as to what constitutes legal rights.

Legal rights are a distinctive feature of Scots law.  Legal rights are likely to have been introduced around the same time as feudal tenure in Scotland. When looking at the history of legal rights I was reminded of the fact that up until 1868 land could still not be bequeathed in a will as land continued to pass to the next generation under the law of primogeniture. I am also sure many of you will remember the terms ‘terce’ and ‘courtesy’ and the Succession Scotland (Act) 1964 from your time at University.  Our present system of legal rights come from the 1964 Act.

Legal rights apply whether an individual dies having made a will (testate) or not (intestate). It is not possible to defeat legal rights in a will. Legal rights act as a safeguard to protect members of a family from being disinherited. It is not possible to take a legacy as well as claiming legal rights.

Legal rights can be claimed by the surviving spouse, and the children (including adopted) of the deceased. The right to claim is automatic, no application to the court is necessary. The legal right of the surviving spouse is one third or one half of the net movable estate depending upon whether there are surviving children. Similarly, the children have a right to one third or one half of the net movable estate depending upon whether there is a surviving spouse.

The movable estate reference is of course crucial in this context. I will come back to this very important point.

The funds available are net of debts applicable to the movable element of the estate such as payment of inheritance tax, funeral costs, expenses to obtain confirmation of the executors and the realisation of assets. The value of the estate is the value at the date of death. Interest accrues from date of death to date of payment. The rate of interest is not fixed: it is what the sum earned or could have earned by prudent management.

In Scots law, there are two types of property, immovable and movable. Immovable property is ‘land’ (and that which is attached to it) and is commonly referred to as heritable property. Everything else other than heritable property is considered movable property.

Legal rights can be claimed only from the movable estate.  This includes bank and building society accounts, investments, savings certificates, premium bonds and life policies.

The removal of the heritable/movable distinction has been suggested on a number of previous occasions, most recently in the final report by the Land Reform Review Group.  The Land Reform Review Group was an independent review group established by the Scottish Government in 2012.  

This is from the final report of the Land Reform Review Group from May 2014 and in particular Part Two Section 6.

“This distinction [between movable and immovable property] does not occur in other European countries and can be traced back to the introduction of feudal tenure in Scotland over 900 years ago. Since that period, the laws of succession to land have been a key issue for those owning the land, in order that their heirs and descendants retained control over all of the land held.”  Part of paragraph 2

“In considering the debate about Scotland’s laws of succession over the last 50 years since the limited reforms of the 1964 Act, it appears clear that ‘agricultural and landed interests’ have successfully opposed a broad consensus across other interests in society to end the distinction between heritable and movable property.” Part of paragraph 15

“The Group considers that, while this issue involves land, the driving need for removing the remaining distinction between heritable and movable property, should be a straightforward matter of social justice based on the current disadvantaged position of spouses and children.” Paragraph 16

“The change would finally end the long standing link between land ownership and succession law in Scotland. The abolition of feudal tenure removed the defining character of a feudal system (superiors and vassals) and the special treatment of land in succession law, which is another distinctive relic of that feudal system, should also be abolished.” Part of paragraph 18

“The Review Group recommends that the Scottish Government should, in the interests of social justice, develop proposals in consultation with the Scottish Law Commission for legislation to end the distinction between immovable and movable property in Scotland’s laws of succession.” Paragraph 20

The following is from the Scottish Law Commission’s report on Succession (report number 215) from April 2009:

“It is generally accepted that this system is flawed. First, legal rights are only exigible from the net movable estate. There is very little, if any, protection when the estate consists largely of heritage as the deceased is free to [decide who inherits what] on heritable property without restriction. On the other hand if the estate is largely movable, the deceased’s freedom to [decide who inherits what] is restricted to half of his movable property if there are no issue and only a third where there are. Second, both assets and obligations have to be classified as either heritable or movable: heritable debts are then in the first place set against heritable property and likewise movable debts against movable property. This complicates the administration of the estate. Third, legal rights are rigid. They do not take into account the recipient’s needs, resources or conduct and the claims of the recipient cannot be balanced against those of the testamentary beneficiaries. Fourth, legal rights vest in the spouse or civil partner on the date the deceased died: this is also true of any testamentary provisions in their favour. In this situation a choice has to be made between legal rights and the testamentary provisions. But the right to choose is only brought to an end by the long negative prescription ie 20 years after the date of death of the deceased. This can result in long delays in winding up estates. Finally, it appears that legal rights are rarely claimed.  In research for her article, Dot Reid found that out of 73 law firms which responded to her questionnaire, 68% of the experienced executry practitioners had not encountered a testate estate in which legal rights had been claimed and a further 28% had only encountered this situation once or twice.” Paragraph 3.3

“There is no doubt that our proposals have given rise to concern among the agricultural community. On reflection we feel that the concern is largely misplaced. First, a child can renounce the right to legal share at any time before or after the deceased’s death. Second, while a spouse or civil partner will be entitled to legal share, most farmers’ wives are aware of and support the farm being inherited by one of their children: we envisage that in these circumstances it will become standard practice for them to renounce their right to legal share on marriage or shortly thereafter. Even if a spouse, civil partner or child elects to receive payment of legal share, we have provided that an application can be made to court by the deceased’s executor for the sum to be paid in instalments thereby reducing the financial difficulties which may arise in order to pay the sum due. The fact that the deceased’s interest in an agricultural business often takes the form of movable property and is subject to legal rights and legitim claims under the current law confirms our view that our proposals will not, in practice, have any serious detrimental effect on the farming and landed estates sector.“ Paragraph 3.64

“Therefore we recommend that: Businesses, including agricultural farms and estates, should not be excluded from claims for legal share.” Recommendation 26

Given the findings of both the Land Reform Review Group and the Scottish Law Commission it is not surprising that the Scottish Government are taking these proposals forward.

So what might this mean for the owner of a family home, a farm or estate?

For many in farming circles it has been perfectly normal for one or more, but not all of the children to be inherit the heritable estate with the other family members getting very little. The merit in this is that the farming unit is not fragmented and the viability of the farming business is maintained. Currently if the farm is held in the names of individuals, the property remains heritable property. However, if the heritable property is held in the name of the partnership, as is often the case, the heritable property becomes movable so it would then become open to a legal rights claim.

There will of course be a number of ways to mitigate the type of changes that are likely to be made.  For example pass on at least some of the land to the next generation prior to death. A second option will be to have those who have such rights renounce them. In addition I am sure many farms and estates will continue to be owned within a company or trust structure of which these proposals may have limited impact.

I am sure this is a topic that we will hear a lot more about in the coming months.  As regards the initial changes I hope that they will be enacted as soon as possible. As for the second part of the proposed changes, I await the consultation paper with interest.

Background
Outer House case concerning the ownership of a house in Paisley. Title of the house was held in the name of Mr and Mrs Hill, equally between them and to the survivor, and was registered in the Land Register for Scotland in 1989.

Mrs Hill died in 1991. The court heard evidence to the effect that, shortly before her death, Mrs Hill had executed a codicil to her will in which she purported to revoke the survivorship destination in favour of Mr Hill. When she died, Mrs Hill’s share of the house was included in her estate for confirmation. Her son executed a formal nomination of entitlement to Mrs Hill’s share and then registered the nomination in the Land Register.

Arguments
Mr Hill argued that Mrs Hill did not have the power to evacuate the survivorship destination, and amongst other things, sought declarator that he had acquired title to the house on his wife’s death and an order ordaining the Keeper of the Registers of Scotland to rectify the register to that effect.

On the other hand, Mr Hill’s son argued that Mrs Hill had evacuated the survivorship destination and willed her share of the house to the son. Even if Mrs Hill had not been entitled to evacuate the survivorship destination, it was contended that (1) the son had acquired title by the operation of 10 years positive prescription based on the nomination registered in the Land Register and (2) that Mr Hill was personally barred from claiming title to the property and seeking rectification of the property due to mora, taciturnity and acquiescence (i.e. that there had undue delay and failure to assert a claim (on Mr Hill’s part) in a situation in which it would be expected that Mr Hill would have spoken up and that, viewed objectively, the facts suggested that Mr Hill had accepted his son’s ownership of the property).

Decision
Lord Jones rejected the son’s arguments.

The survivorship destination
With regard to the survivorship destination, Lord Jones followed the principle in Perrett‘s Trustees v Perrett[1]: i.e. that, where both parties contribute to the purchase price of a property and the title is subject to a survivorship destination, the arrangement is contractual (and not testamentary) meaning that it is not open to either party to evacuate the destination unilaterally in a will[2]. Lord Jones also confirmed that the principle in Perrett is not restricted solely to cases in which the disposition specifically stipulates that the parties have contributed equally to the price.

Prescription
With regard to the son’s arguments on prescription, Lord Jones found that he had not demonstrated possession for a continuous period of 10 years noting that, although he lived in the property between 1992 and 1995 and claimed to have continued to have access to the property afterwards there was no specification as to when or in what circumstances the access had been taken. (It is worth noting that the court made no judgement as regards the operation of prescription on a title registered under the Land Registration (Scotland) Act 1979[3] as the parties had not provided arguments in that regard).

Acquiescence
The son’s arguments regarding mora, taciturnity and acquiescence were also rejected. Lord Jones found that the son’s title had always been open to challenge and that he had not in fact become owner of his mother’s share of the house. As such, Mr Hill could not have been said to have become aware that his son was the owner and could not be said to have delayed raising an action against his son as he had no reason to do so (until the son had raised an action of division and sale of the house in June 2015).

The full judgement is available from Scottish Courts here.

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[1] 1909 SC 522.

[2]  On the other hand, a party may be able to evacuate the destination if he or she has provided all of the funds for the property him/herself.

[3] Under the 1979 Act the operation of prescription was limited to situations where the Keeper had excluded indemnity in respect of the title. (The situation is different under Land Registration etc. (Scotland) Act 2012 which repealed the 1979 Act, however, the son’s title had been registered under the 1979 Act not the 2012 Act.)

A Bill for an Act of the Scottish Parliament to amend the Land and Buildings Transaction Tax (Scotland) Act 2013 to make provision about an additional amount of tax to be chargeable in respect of certain transactions relating to dwellings.

Bill as introduced can be found here.

Explanatory guidance can be found here.

Scottish Parliament progress update can be found here.

Background
Outer House case in which William Tracey sought damages from SP Transmission in respect of overhead power cables and other equipment running through William Tracey’s site in Linwood which William Tracey argued amounted to an encroachment on the site.

William Tracey occupied the site as a tenant (of the William Tracey Private Pension Fund) from 1997 and then as the proprietor from 2006.

Prior to 1997, the site was owned by Thomas Houston & Son (Johnstone) Limited. Thomas Houston had agreed a wayleave in favour of Scottish Power plc allowing installation of the equipment on the site.  However the wayleave conferred only a personal right on Scottish Power and did not bind successor owners of the land. SP Transmission contacted William Tracey seeking to agree a wayleave in respect of the equipment in 2005 but William Tracey refused to grant the wayleave.

In December 2010 William Tracey issued a notice requiring SP to remove the equipment from the site (following a procedure contained the 1989 Act[1] which provides for the situation where ownership has changed and a wayleave is no longer binding on the landowner). Using powers available to it under the 1989 Act[2], SP then applied for a “necessary wayleave” which allows a licence holder to obtain a wayleave from the Scottish Ministers where the owner or occupier refuses to grant the wayleave voluntarily. The necessary wayleave was granted by the Scottish Ministers in August 2014.

Arguments
William Tracey argued that the necessary wayleave only had effect from August 2014 onwards and, as such, that it was entitled to damages in respect of the encroachment of the cables and equipment on its property between 1997 and August 2014.

Decision
Lord Brodie rejected that argument and dismissed William Tracey’s action. In doing so, he agreed with SP’s contention that, having regard to the wording used, the correct interpretation of the 1989 Act is that, when a change in ownership means that a wayleave ceases to be binding on an owner of land, the wayleave is nevertheless continued meaning that keeping the equipment on the property is lawful and not an encroachment. If the landowner wishes to bring that temporary state of affairs to an end, its only remedy is to give notice requiring removal of the equipment[3].  Following receipt of the notice the licence holder can then, if it requires, apply for a necessary wayleave from the Scottish Ministers (which may or may not be granted).

Lord Brodie also noted that, if William Tracey’s argument were correct, it would mean that, where landowner refuses to agree a wayleave with a licence holder, a delictual liability could be imposed on a licence holder doing no more than complying with its statutory duties. Moreover, in some cases, that liability would be unknown to, and unavoidable by, the licence holder.

The full judgement is available from Scottish Courts here.

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[1] Electricity Act 1989, sched 4, para 8 (1) and (2)

[2] Sched 4, para 6.

[3] Under para 8(2) of sched 4 and as William Tracey did.

Background
Outer House case considering a dispute as to the ownership of a semi-detached cottage near Kilmarnock. Mr McNaughton argued that the cottage had been owned by his late father (for whom he was acting as executor) and sought reduction of an a non domino[1] disposition conveying it to the Majors (which had been granted by another neighbouring proprietor). Mr McNaughton also sought a decree ordaining the Majors to vacate the cottage.

The cottage was one of two semi-detached properties in the same building. The other property in the building had been occupied by Mr McNaughton’s family since at least 1922. Mr McNaughton’s father bought the feudal superiority to both parts of the property in 1961 (and recorded the deed in 1987). The last recorded disposition of the dominum uitle (or vassal’s title) to the cottages had been recorded in 1868 and was in favour of a John Arnott but, at the time the superiority was acquired, no one was exercising any rights to the dominum uitle. Feudal Superiorities were abolished on 28 November 2004 and the estate of dominum uitle became full ownership of land[2]. Consequently, the court had to determine whether the Mr McNaughton had acquired the dominum uitle prior to 28 November 2004.

Arguments
Lord Jones found that the disposition conveying the superiority to Mr McNaughton’s father was capable of being read so as also to include the dominum uitle to the property. As such[3], it was possible for Mr McNaughton to obtain title to the dominum uitle by prescriptive possession based on that disposition. Although Mr McNaughton’s father had not occupied the part occupied by the Majors, Mr McNaughton argued that the Majors’ occupation of the cottage amounted to civil possession on his father’s behalf.

On the other hand, the Majors argued that, although there would have been civil possession of the property if they had occupied it under a lease from Mr McNaughton’s father, they had not done so and had been given possession of the property by Mr McNaughton’s mother on the basis she believed it was not owned by Mr McNaughton and would be returned to the Crown if left vacant. Although they paid £15 per week to Mr McNaughton in order to occupy the premises, they said that it was a contribution towards insurance costs and was not rent.

Decision
Lord Jones granted decree for reduction of the a non domino disposition in favour of the Majors and put the case out by order for further discussion as to the granting of a decree requiring the Majors to vacate the cottage.

In coming to this conclusion Lord Jones accepted the Majors’ evidence to the effect that they did not acknowledge Mr McNaughton’s ownership of the property but rejected their argument that civil possession could only be established if it could be proved that they had occupied the premises under a lease.  Whether or not there had been a lease in place and whether or not they acknowledged Mr McNaughton’s father’s ownership of the property, the Majors had only been able to occupy the property because Mr McNaughton’s father had allowed them to do so in return for a weekly payment. If he had withdrawn his permission, they would have had to move out of the property. As such, Lord Jones found that the Major’s possession derived from Mr McNaughton’s father’s right to the property meaning that Mr McNaughton’s father was able to establish civil possession of the property through the Major’s physical possession allowing him to acquire title to the property.

The full judgement is available from Scottish Courts here.

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[1] A disposition from someone who is not the owner which, after 10 years prescriptive possession, can give good title to the property.

[2] Abolition of Feudal Tenure etc. (Scotland) Act 2000.

[3] If it had been clear from the deed that the title conveyed had only been to the superiority (I.e. it had made it clear that the dominium utile was not included) then the title would not have been sufficient in its terms (under s1(1)(b) of the Prescription and Limitation (Scotland) Act 1973) to found the prescriptive possession necessary to acquire title to the dominium utile.

Outer House case relating to a development at Watling Street in Motherwell which was alleged to have been built on contaminated land. The McManuses sought damages from City Link Development Company (the Developer), Scott Wilson Scotland (which the McManuses claimed had been environmental consultants on the development project) and Lanarkshire Housing Association (from whom the McManuses had leased properties on Watling Street) after suffering illness which they said had resulted from vapour given off by the contamination.

Arguments
The McManuses sought damages from City Link and Scott Wilson on the basis:

1. that their illness had been caused by the fault of City Link and Scott Wilson in terms of the common law; and
2. that City Link and Scott Wilson had breached the Environmental Protection Act 1990 (s33(1)(a)).

The McManuses also argued that the Housing Association had breached an implied term of their tenancy agreement, and were later in breach of certain provisions of the Housing (Scotland) Act 2001.

Decision
City Link
Common law fault
In terms of the common law, the McManuses argued that City Link knew or ought to have known that the property had not been properly investigated for contamination and had not ben remediated so as to be fit for residential development. However, the court found that reports produced by Scott Wilson were such that a layperson would have understood that the site was suitable for residential development. As such, City Link would only have been liable (1) if they had sufficient expertise to ascertain that Scott Wilson’s investigations had not been sufficient to determine that the site was fit for residential development or (2) if City Link owed a non-delegable duty of care (which can arise in respect of particularly hazardous operations) to the McManuses. The court found that, in the circumstances, neither applied in this case and City Link’s duty did not extend to checking Scott Wilson’s work meaning that City Link were not at fault.

Scott Wilson
Common law fault
Scott Wilson argued that it had not been employed as environmental consultants on the project and pointed to other contractors involved in the project who may have fulfilled that role. As such they argued that the McManuses’ case against them was irrelevant. However, Lord Jones found that the McManuses’ case against Scott Wilson was not bound to fail. It was noted that other contractors involved had been subordinate to Scott Wilson and that it would be possible for the McManuses to prove that it was Scott Wilson’s responsibility to investigate the contamination and to advise on the remediation necessary to make the site suitable for residential development. Further proceedings were allowed in that regard.

City Link and Scott Wilson
The 1990 Act
The MacManuses also argued that City Link and Scott Wilson had been responsible for depositing controlled waste on the site (contrary to s33(1) of the Environmental Protection Act 1990) when materials were redistributed around the site during remediation works. However, Lord Jones accepted arguments made by City Link and Scott Wilson to the effect that the works had taken place prior to the relevant provisions of the 1990 Act coming into force and could not give rise to liability under the act.

The Housing Association
The first property was held under an assured tenancy (in terms of the Housing (Scotland) Act 1987)  until September 2002 and a secure tenancy (under the Housing (Scotland) Act 2001) thereafter. The second property was also held by virtue of a secure tenancy. The court found that, in both situations, the Housing Associations obligations and duties related to the fabric of the let property itself and the McManus’s arguments which were based on the location and construction of the properties were irrelevant.

Time bar
The court also considered arguments to the effect that the McManuses case was time barred but the McManuses were given an opportunity to amend their pleadings and no decision was reached in that regard.

 The full judgement is available from Scottish Courts here.

Petition for Judicial Review in which Trump International sought to challenge the Scottish Government’s decision to grant consent for an offshore wind farm near its golf resort at Menie in Aberdeenshire. There were two main challenges to the decision.

Section 36 of the Electricity Act 1989
Trump argued that the Scottish Government should not have granted consent in terms of s36 of the Electricity Act 1989 as the wind farm developer did not hold a licence to generate electricity. Trump founded on the decision in Sustainable Shetland v The Scottish Ministers[1] in which Lady Clark found that consent to build a wind farm could not be granted to developers who did not already hold a licence to generate electricity. In the Outer House Lord Doherty disagreed with the interpretation taken in Sustainable Shetland, rejected that argument and dismissed Trump’s petition. The Inner House refused an appeal finding that the entitlement to apply for a section 36 consent is not limited to developers who already hold (or are exempt from holding) a licence to generate electricity and that, where an applicant under section 36 obtains consent, it will require to obtain a licence or an exemption before it can generate electricity at the wind farm.

The Supreme Court have again rejected Trump’s arguments in that regard finding that its proposed interpretation was not supported by the structure and language of the 1989 Act. It also found that there was nothing in the policy behind the 1989 Act requiring the Court to take a different view of the statutory provisions. In coming to this conclusion the court noted, amongst other things, that it was not a necessary part of the policy that the persons who built electricity generating stations would also be the persons responsible for generating the electricity and that it has become established practice for organisations to seek s36 consents before applying for a licence to generate electricity.

Condition 14 of the consent
Trump also argued that condition 14 of the consent granted by the Scottish Government, which provides for the submission and approval of a design statement before the development could begin, was void for uncertainty. However, the Supreme Court found that, even if that condition had been unenforceable, the consent would not have been invalidated as it was found not to be a fundamental condition determining the scope and nature of the development (this also being covered by other aspects of the consent). Further, the court noted that a planning condition can only be said to be void if it can be given no sensible or ascertainable meaning and found that that was not the case with condition 14.

As such, Trump’s appeal was dismissed.

The full judgement is available from the Supreme Court here.

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[1] [2013] CSOH 158

Background
Inner 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.

The issues
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.

Outer House decision
In the Outer House Lord Tyre found in favour of the tenants on both issues holding:

•  that the obligation to keep the premises in good and substantial repair did not necessarily import an obligation to put the premises in that condition regardless of its condition at the commencement of the lease and that the tenants’ obligation was referable to the condition in which the premises were accepted at the commencement of the lease; and
• that the tenant’s obligation to make payment for the cost of the works was conditional on the landlords intending to carry out the repair works and was not as a liquidate damages provision. (Lord Tyre was persuaded that this was the interpretation which best accorded with commercial common sense as he found that very clear wording would be required before it could be concluded that a tenant had entered into an obligation to pay a sum which might bear no relation to the loss actually suffered by the landlord –in this case the estimated cost of the works required was over £1m whereas the tenant argued that, even if it had carried out all of the works, the capital value of the premises would only have increased by £175k.)

Inner House decision
The Inner House have allowed an appeal.

Putting and keeping
The repairing obligation including the following wording: (obliging the tenant)

“To accept the leased subjects in their present condition and at their own cost and expense to repair and keep in good and substantial repair and maintained, paved, heated, aired and cleansed in every respect all to the satisfaction of the Landlord and to replace or renew or rebuild whenever necessary the leased subjects and all additions thereto….. in at least as good condition as they are accepted by the Tenant all to the satisfaction of the Landlord and that regardless of the age or state of the dilapidation…”

The court came to the conclusion that the natural meaning of the clause was clear and, if the premises were not in good and substantial repair at the beginning of the lease, the tenant was required to repair them in such a way as to achieve that standard. The court took the view that the obligation “to repair” of itself was indicative of that but, if there were any doubt, previous cases support the argument that an obligation to keep property in good and substantial repair carries with it an obligation to put them in that condition[1].

In coming to that conclusion the court noted:

 “the repeated references to “the satisfaction of the landlord” not only supports the above construction and confirms that “good and substantial repair” is to be assessed by reference to the landlord’s interest in the subjects being maintained to and being delivered up in at least tenantable standard.  Further, the phrase “regardless of the age or state of dilapidation of the buildings” confirms that the tenant is not to be excused of its obligation to repair, maintain and renew etc to at least “good and substantial repair” standard by reason of them being below that standard at the commencement of the lease or, indeed, them falling below that standard during it.  The absence of a schedule or other record of condition provides further cogent support for that construction.”

Payment of sum in lieu of repairs
A further clause made provision to the effect that, at the expiry/termination of the lease, the tenant was required to carry out repairs and surrender the premises to the landlord in a state complying with the repairing obligation. However, the clause also included the following proviso:

“Provided Always that if the Landlord shall so desire at the expiry or sooner termination of the foregoing Lease they may call upon the Tenant, by notice in writing (in which event the Tenant shall be bound), to pay to the Landlord at the determination date… a sum equal to the amount required to put the leased subjects into good and substantial repair… in accordance with the obligations and conditions on the part of the Tenant herein contained in lieu of requiring the Tenant himself to carry out the work.”

The Inner House took the view that the only natural and ordinary meaning which could be given to the clause was that it was a payment clause (and not a damages clause) meaning that the sum due by the tenant did not depend on loss suffered by the landlord. Consequently, the fact that the cost of carrying out the repairs may have been disproportionately more than any increase in capital value of the premises achieved as a result was irrelevant. As such, the Inner House determined that there was no potential for interpreting the clause so as to mean that payment for the cost of the works was dependent on the landlord’s intention to carry out the works.

In coming to its conclusion, the Inner House contrasted the wording used in this case with that in Grove Investments Ltd v Cape Building Products Ltd[2] on which Lord Tyre had relied when reaching his decision in the Outer House.

The provisions in this case contained a procedure (not included in the lease in Grove) under which the Landlord made an election and served a notice on the tenant requiring the tenant to make the payment in lieu of carrying out the repairs which the court found to be significant in suggesting that the landlord’s right was to a contractual payment rather than a payment of damages.

Also, the wording used in Grove made reference to the landlord and tenant reaching a settlement based on the value of a schedule of dilapidations rather than making reference to the cost of making the repairs which the court interpreted as being analogous to a damages clause.

Ultimately the differentiating factor was that the wording in this case was interpreted as including a landlord’s right to demand a contractual payment unrelated to loss whereas the wording in Grove was not.

Some general principles
The Inner House stated:

“Care must also be taken to avoid reading anything said in Grove as being to the effect that the court can correct a bad bargain or even an unfair one; there is no general rule that a commercial contract requires to be fair”.

 And:

“it is not legitimate to re‑write parties’ agreement because it was unwise of one party to gamble on future outcomes;  the question is not whether a reasonable tenant would have entered into the obligation”

 Further:

“it is important to note that Grove did not lay down any general rule to the effect that the landlord in a commercial lease is, at termination, if repairs are outstanding only entitled to be compensated for capital loss actually suffered.”

 The full judgement is available from Scottish Courts here.

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[1] Albeit it was noted that a different conclusion may be appropriate where no obligation to renew or replace or rebuild as necessary is included.

[2][2014] CSIH 43

Supreme Court case considering the effect of a break clause contained in sub-underleases of different floors of a building known as “The Point” in London.

M&S let the property from BNP and the rent was paid quarterly in advance. When M&S exercised the break clause, the lease came to an end on 24 January 2012. M&S then brought a claim for return of the apportioned rent in respect of the period from 25 January 2012 to 24 March 2012.

There was no express term in the lease which entitled the tenant to repayment of the rent. However, M&S argued that a term should be implied into the lease.

The Supreme Court dismissed M&S’s appeal.

The Court confirmed that a term will only be implied into a contract if it satisfies the case of business necessity or is so obvious that it goes without saying.  It was noted that, although rent payable in arrears is apportionable under the Apportionment Act 1870, the 1870 Act does not apply to rent payable in advance and that common law authorities do not provide for rent (whether paid in arrears or advance) to be apportioned. The court then reached the conclusion that (aside from in very exceptional circumstances) an express term would require to be included in the lease to entitle a tenant to a refund of rent paid in advance.

Lord Neuberger said the following:

“Save in a very clear case indeed, it would be wrong to attribute to a landlord and a tenant, particularly when they have entered into a full and professionally drafted lease, an intention that the tenant should receive an apportioned part of the rent payable and paid in advance, when the non-apportionability of such rent has been so long and clearly established. Given that it is so clear that the effect of the caselaw is that rent payable and paid in advance can be retained by the landlord, save in very exceptional circumstances (eg where the contract could not work or would lead to an absurdity) express words would be needed before it would be right to imply a term to the contrary.”

The full judgement is available from the Supreme Court here.

Outer House case in which the John Muir trust sought reduction of the Scottish Ministers decision to grant consent for the construction of 67 wind turbines at Stronelairg near Fort Augustus.

Background
In their decision letter the Ministers intimated that they had decided not to hold a public local inquiry stating that they had taken into account 96 objections “and all material considerations”.  They expressed the view that there were no significant issues which had not been adequately considered “in the application, Environmental Statement and Supplementary Environmental Information, consultation responses and third-party representations” and that they had had sufficient information to be able to make an informed decision on the application without the need for a public local inquiry.

Arguments
The trust argued challenged the consent on the basis that the Ministers acted unlawfully and/or unreasonably in granting the consent:

• without the advertising of, and/or consulting on, the supplementary environmental information; and
• without giving adequate reasons for not following Scottish Natural Heritage advice (SNH having objected in principle to the wind farm on the ground of its impact on wild land).

The trust also argued that the reasons given in the decision letter for granting the consent were inadequate.

Decision
Lord Jones found that the trust’s challenge to the Ministers’ decision should succeed for the following reasons.

• A report recommending that Highland Council did not to object to the wind farm on condition that the developer make changes to the layout of the proposed wind farm was additional information which had required advertisement and/or consultation (in terms of The Electricity Works (Environmental Impact Assessment) (Scotland) Regulations 2000 and Environmental Impact Assessment Directive 2011/92/EU).
• The Ministers decision letter did not take into account SNH’s objection in principle to the wind farm (on the basis that it would have significant adverse impacts resulting in a loss of wild land and that it was not possible to mitigate those impacts).
• With regard to SNH’s objection in principle to the wind farm, the Ministers had failed to give adequate reasons for their decision in the decision letter.

The full judgement is available from Scottish Courts here.

(NB: See appeal to the Inner House here.)