Long Leases (Scotland) Bill

Scotland
01/12/2011
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Introduction
 

The Long Leases (Scotland) Bill has been included in the current legislative programme for the Scottish Parliament.


 

If the bill becomes law, it will automatically convert a tenant’s interest in an “ultra-long lease” of property to outright ownership.



Why change?
 

The key rationale behind the bill is that the granting of a lease of more than 175 years effectively amounts to a transfer of ownership. In most cases the landlord has little or no real interest in the land and it is therefore inappropriate for the landlord to exercise any measure of control over it.



Brief summary of proposals

 A lease would qualify if it had been granted for more than 175 years and, on an appointed day, it had more than 100 years left to run.
 The scheme would be compulsory and automatic - on the appointed day qualifying leases would be converted into ownership and the residual ownership of the landlord would be extinguished.
 Certain lease conditions would remain in force.
 The landlord would be entitled to compensation calculated as a multiplier of the rent. In some cases additional compensation will also be due. The landlord will have a period of 2 years within which to claim compensation.
 There will be an optional opt out for the tenant but not the landlord. It is envisaged that a tenant may do this where the amount of compensation payable to the landlord is large.

Exclusions
 

Some types of leases are excluded from the proposed scheme. One of the exclusions relates to leases which have an annual rent of over £100. This is aimed at removing commercial leases from the ambit of the bill. There is concern that the exclusion as drafted will not catch many commercial leases. Variable rent is not taken into account and so the current provisions would not catch leases which for example were granted for a large premium and a minimal rent or leases which have turnover rent. The Government have undertaken to look again at how the exemption for commercial leases will be formulated. It seems clear therefore that were the bill to be passed there will be a commercial lease exemption, but it is not clear what form this would take.



What next?
 

As no distinction is drawn between agricultural, residential and commercial leases, landlords and tenants in all areas of property should be mindful of how the proposed changes might affect them. Tenants of ultra-long leases should consider whether the cost of paying the likely compensation payment might justify opting out of the regime. Landlords should also be careful to ensure that they receive the compensation that they are entitled to for the loss of their rights. In particular, the time periods for claiming compensation should be kept in mind by landlords and their advisors.


 

There is no certainty that this bill will be passed. However, given the part this proposal plays in a larger review of the structure of land law in Scotland we would be surprised if it did not become law.


 

For the full article click here.


 

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