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• that the existing business rate exemptions for shooting and deer-stalking are to be withdrawn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.