The Long Leases (Scotland) Act 2012 will convert ultra-long leases will into ownership on the appointed day. This follows the principal applied to feus by the Abolition of Feudal Tenure etc (Scotland) Act 2000 which converted the right of the feuar into real ownership. The SLC argued in their Report on the Conversion of Long Leases that as ultra-long leases are essentially “pseudo-feus” it seems obvious to apply the principles of the 2000 Act to long leases. This means that if you are a tenant with an ultra-long lease, then as of the appointed day you will become the owner of the property.
Ultra-long leases were usually granted for 999 years and many still have hundreds of years to run. There are a number of disadvantages to ultra-long leases. The Scottish Law Commission (SLC) commented in their Report on the Conversion of Long Leases that the system of leases and sub-leases is “needlessly complex”, especially when it is only the tenant/sub-tenant who receives any real benefit. In addition, ultra-long leases allow landlords an “inappropriate degree of control” when in reality they have little to do with the property. The SLC mention that it can also be difficult for tenants to gain finance with only a lease as security.
28 November 2015 has been set as appointed day for The Long Leases (Scotland) Act 2012.
What qualifies as an ultra-long lease?
An ultra-long lease is one that was granted for a period of more than 175 years; and the time left to run on the lease is i) more than 100 years for residential leases, or b) more than 175 years for any other leases.
There are exceptions, for example where the rent is over £100 per annum.
What if I have a sub-lease?
So long as the sub-lease counts as a qualifying lease then it will be the sub-tenant’s interest that converts to ownership. So the owner of the leased land loses ownership and the head lease is extinguished. If the sub-lease did not qualify then the head lease would convert.
Is conversion mandatory?
Landlords can register an agreement with the tenant to opt-out according to the 2012 Act. Tenants may also exempt a qualifying lease by registering a notice not later than two months before the appointed day.
Registers of Scotland have issued guidance including the forms of notices that are required to be submitted if a landlord or a tenant wishes to exempt a qualifying lease.
Does the conversion happen automatically?
Yes it does. What this means for ultra-long leases registered in the General Register of Sasines is not known. Could this trigger Automatic Plot Registration, or would the Keeper use the opportunity to induce first registration? There is also the option for the new owners to voluntarily register their now ownership in the Land Register. For ultra-long leases already registered in the Land Register, the Keeper will be kept busy rectifying the Register.
What about standard securities and other charges?
Standard securities over the landlord’s interest are extinguished, but any debt which had been secured will remain due. Any fixed charges granted over a lease which has converted, will transfer across to the (former) tenant's ownership title.
What about burdens?
Leasehold conditions can only become real burdens if they satisfy the requirements for real burdens under the Title Conditions (Scotland) Act 2003.
A person with a right to enforce a qualifying condition (“the entitled person”) can convert the condition into a real burden in favour of neighbouring land. The entitled person is usually the landlord (of the qualifying lease or a superior lease) but in some circumstances is a neighbour. The “entitled person” can serve a notice on a tenant of the qualifying lease for the purpose of converting a qualifying condition into a real burden in favour of neighbouring land.
Compensation
The 2012 Act requires the tenant to make a ‘compensatory payment’ to compensate the landlord for the loss of rent. The landlord has to serve a notice to claim this money, within two years of conversion. In certain cases the landlord can, within two years of conversion, serve a notice claiming a further, ‘additional payment’. This covers sources of loss to the landlord apart from the loss of rent.
What should landlords and tenants be doing before 28 November 2015?
- Check the duration of your lease and the time left to run.
- If you are a tenant and your lease will qualify then you don’t need to do anything; unless you don’t want the lease to convert, in which case you will need to register a notice no later than the end of September.
- Similarly if you are a landlord and you don’t want the lease to convert you will need to get the agreement of your tenant and register a notice of any agreement within the same time period.
- If as a landlord you think you are entitled to compensation for loss of rent as a result of the lease converting then you will need to serve a notice on the former tenant before 28 November 2017.
- If an individual with a right to enforce a qualifying lease condition wishes to convert this in to a real burden, they will need to ensure that the condition complies with the Title Conditions (Scotland) Act 2003 before registering a notice.
Contact our Commercial Property Solicitors in Glasgow
If you have any concern regarding a real burden affecting your property, or a property that you are looking to purchase or lease, following review of this blog article, please do not hesitate to seek legal advice from theCommercial Property Team at Miller Samuel LLP.
