Specialist Topics
Leasehold Interests
A contract of lease (or tack, as it was often called in the past) is one whereby the use of heritable subjects is given to a lessee (or tenant) in return for the annual payment of a rent (or tack-duty). Leasing has certain similarities to feuing in that the lessee has the use of the property subject to the conditions laid down by the granter of the lease (known as the lessor or the landlord), and subject to an annual payment. It differs from feuing in that a lease is only for a definite number of years, after which the subjects revert to the landlord, whereas a feu is granted in perpetuity. No feudal relationship is created between lessor and lessee when a lease is granted.
The leasehold relationship is constituted between two parties, the landlord and the tenant. Each party must be a separate legal persona (or an association of personae holding the interest pro indiviso). A proprietor cannot validly grant a lease in favour of himself or herself. Equally, it has been held in the case of Clydesdale Bank plc v. Davidson 1998 S.C. 51 (H.L.) that two or more pro indiviso proprietors cannot validly grant a lease in favour of one of their number. In such a case, the purported tenant’s real right to possess the property derives from the pro indiviso ownership; the purported lease may have the effect of preventing the other co-proprietors from exercising their rights of occupancy, but it cannot create a real right of tenancy which is effective against third parties.
There are a number of specialities connected with leases of which a registration officer must take account when examining title. In terms of section 3(3) of the Land Registration (Scotland) Act 1979, once an area has become operational, registration is essential in order to obtain a real right in a lease or transmission thereof taking effect after the operational date. Any transfer of a lease, whether for valuable consideration or not, is registrable and cannot be recorded in the Register of Sasines. Section 2(3) however applies, and a heritable security, liferent or incorporeal heritable right over a lease will not induce a first registration. A deed creating or dealing with such an interest may still be recorded if the lease itself is not registered.
In order to allow for future registration in the Books of Council and Session, all leases which induce registration, first or otherwise, will be stamped ‘Registered’.
19.3 Positive prescription for leasehold interests (where lease granted/delivered prior to operational date for county)
Section 1 of the Prescription and Limitation (Scotland) Act 1973 (‘the Prescription Act’) applies to any interest in land (including long leases), the title to which can competently be recorded, or which is registrable in the Land Register, and enacts that where possession of that interest was founded on and follows the recording in the Sasine Register of a deed constituting a title to that interest in the land, the period of positive prescription is ten years.
By section 2 of the Prescription Act, where possession of the interest in land of the lessee under a lease was founded on, and followed the execution of, a deed (whether recorded/registered or not), the period of positive prescription is twenty years.
Prior to the coming into operation of section 3(3) of the 1979 Act, it was possible for a tenant to obtain a real right in a lease by possession without registration. Section 2(2) of the Prescription Act applies to such a lease and a prescriptive progress of title can be founded on an unrecorded deed executed at least 20 years before the date of receipt of an application for registration. Even an invalidly recorded lease can be a foundation for prescription under section 2(2) of the Prescription Act.
Sections 1 and 2 of the Prescription Act are operative without prejudice to each other. The distinction between the application of these sections is that 10 years’ possession is sufficient for prescription to operate if founded on an ex facie valid deed recorded in the General Register of Sasines and that 20 years’ possession is required if founded on an unrecorded deed. The recording of a previously unrecorded deed, however, does not interrupt the 20 year period. Consequently, the recording of an unrecorded deed will give the person entitled the choice of a prescriptive period commencing from the date of execution and continuing for 20 years or from the date of recording for 10 years, whichever is more advantageous.
On first registration, therefore, the prescriptive progress will commence with a deed which may or may not have been recorded, and may be founded by the lease itself or an assignation of the lease, or it may be necessary to go back into the landlord's title to establish the foundation to the prescriptive progress.
19.3.1 Interest of tenant being registered follows on unrecorded or unregistered Lease
Registration officers should note that registration takes place in respect of the interest of the tenant. There will be occasions where an applicant has applied to register their interest as tenant following on an assignation to them when the original lease has not been recorded or, in some cases, where the lease was granted after the operational date for the relevant county but the interest was not submitted for registration. There is no requirement to register the lease as well as the assignation in such cases. Such a registration following on an assignation will form the basis of a first registration for an existing interest, even where the landlord’s interest has come to be registered after the granting of the lease.
The officer will require to concern themselves as to the usual matters, but in cases where registration was required to constitute the real right by virtue of section 3(3) of the 1979 Act, they will also need to check whether the landlord has changed since the granting of the lease. In such circumstances, the new landlord must consent to registration.
The application form 1 should relate to the current assignation, however the lease will be treated as being registered on the same date for the sake of the entry in the burdens section of the title sheet.
19.4 Requirements for a registrable lease
In every case, however, it is necessary to examine the lease itself. A number of the statutory requirements for a registrable lease are such that a lease lacking them can never meet the requirements of section 2 of the Prescription Act for a deed on which prescription may be founded. The lack of these requirements cannot therefore be cured by prescription. It follows that an assignation of such a lease cannot be a foundation for prescription any more than the lease itself can.
The leasehold interest must be constituted in a document or documents which are executed in self-proving form. Normally this means that a formal deed is required. However, properly authenticated and stamped missives of let are an acceptable alternative, provided they are executed by the parties themselves in self-proving form and fulfil all the other requirements for a registrable lease.
All applications relating to leasehold interests constituted by missives should be referred to the Legal Services, where they will be considered on their merits.
It should be noted that a lease for a period exceeding 20 years which falls outwith the definition of ‘long lease’ in the 1979 Act because it is not in self-proving form is not a long lease within the meaning of the Act and so is not capable of being registered in the Land Register. Neither is such a lease capable of being noted as an overriding interest (see section 6(4) of the Act). Likewise, a long lease, which is not in self-proving form, over subjects in a non-operational area cannot be recorded in the Sasine Register because it is outwith the scope of section 1 of the Registration of Leases (Scotland) Act 1857.
(a) Minimum duration
In order to fall within the definition of ‘long lease’ in section 28 of the 1979 Act, the term of the lease must exceed 20 years (i.e., be at least 20 years and 1 day), or be capable of being renewed at the grantee’s request, without any subsequent agreement, so that its total duration exceeds 20 years.
It should be noted in connection with the duration of a lease, that where the period of the lease is expressed by reference to a term day (e.g. Whitsunday 1982 to Whitsunday 2002), the period does not exceed 20 years and the lease is not registrable. Where, however, the period is expressed by reference to calendar dates (e.g. 15 May 1982 to 15 May 2002) the period does exceed 20 years and the lease is registrable. The above would not apply if the period ‘20 years’ is expressly stated - the logical inference being that one of the days (whether at beginning or end) would be discounted and the lease would be regarded as non-registrable. This apparent anomaly is because the entry or ish on a term day is conventionally taken to occur at noon on each of these days, while no such convention exists where entry and ish are given as calendar dates. In the latter situation, the whole of both calendar dates is therefore included in the period of the lease.
Section 17 of the Registration of Leases (Scotland) Act 1857, as amended by the Land Tenure Reform (Scotland) Act 1974, provides that a lease for a period of 20 years or less which contains an obligation to renew which would extend the period of the lease to more than 20 years is registerable (i.e. where the lease includes a clause which expressly binds the landlord to grant an extension of the lease to a duration more than 20 years at the tenant’s request, rather than a general non-specific provision). However, where a lease for a period of 20 years or less which contains no obligation to renew has nevertheless been extended so that the total duration is more than 20 years, it is also registrable or capable of being noted as an overriding interest.
It is no bar to recording or registration that a lease starts at a future date, provided it meets the other criteria.
(b) Maximum duration
Section 67 of the Abolition of Feudal Tenure (Scotland) Act 2000 provides a maximum duration for a long lease. The provisions apply only to leases which are executed on or after 9 June 2000. Such leases may not continue for a period of more than 175 years. Any renewal period reckons towards the 175-year period, provided the lease contains provision requiring the landlord or the tenant to renew it.
A lease which infringes section 67 is not invalid; it simply terminates 175 years after its commencement date. Where such a lease is presented for registration, it should not be rejected on the grounds that its duration is more than 175 years, but indemnity should be excluded as follows:
The exclusion of indemnity should also be added to any other registered interests which are affected by the lease (e.g. the landlord’s interest).
Section 67 allows for the extension of the duration of a lease by statute. It also preserves the potential for the extension of a time-expired lease by tacit relocation. The legal term ‘tacit relocation’ refers to the implied consent to the renewal of a lease if notice to terminate the lease is not given timeously. The renewal is for 1 year in the case of a lease for a year or more.
Where a lease executed on or after 9 June 2000 implements an obligation entered into before that date, it is not affected by the limited maximum duration. Equally, a sub-lease granted after 9 June 2000 may exceed the 175-year limit if it is a sub-lease of part or all of the subjects in a lease which is not subject to the limitation, and which still has more than 175 years to run.
(c) Problem with Duration
Lack of information about the duration of a lease is the one factor it is impossible to get round. Where the duration of the lease is not stated in any of the documents accompanying an application for registration of leasehold subjects, there is no guarantee that a registrable interest exists. For all the Keeper knows, the lease may have expired already. Though the fact that the applicant continues to occupy the subjects suggests that the termination date of the lease has not yet arrived, there is also the possibility that the original lease has terminated but that the tenant continues to occupy on tacit relocation (see Tacit relocation). In that case, the original lease may have been for less than 20 years. In view of these doubts, where no indication of the duration of the lease can be obtained, the application to register must be rejected.
In all cases where the original lease or a copy thereof cannot be produced, the end-product of the application is going to be something less than satisfactory to both the applicant and the Keeper, especially to the latter whose indemnity may well be at risk. Unless, therefore, the case falls into the category outlined in the two immediately preceding chapters (i.e. the rent, extent and duration of the lease are all ascertainable from assignations and the subjects are of relatively low value), the applicant should be invited to withdraw his application and feudalise his title. This he can do in two ways. If he knows his landlord, who is willing to co-operate, by taking a conveyance of the subjects from his landlord. If he does not know his landlord, the Keeper may accept an a non domino conveyance of the subjects; this will be subject to the policy guidelines in Dispositions a non domino. If the applicant does elect to feudalise his title by an a non domino conveyance, he should be advised to retain the unregistered assignations, as a back-stop in case his a non domino title is challenged before prescription has run.
Only if the applicant declines to feudalise his title should the registration officer proceed to consider and/or implement the steps narrated in Application to register leasehold interest where the original Lease cannot be found.
A rental must be stipulated in a lease (but it may be illusory).
(a) General
The requirement that the granter of a lease must be infeft (the facility for deduction of title has not been extended to the granting of leases) is one whose absence can be cured by prescription. A lease by an uninfeft proprietor is a deed sufficient in its terms to constitute a title to an interest in land and, therefore, can be a foundation for prescription.
A lease by an uninfeft proprietor can of course be validated by accretion, and although the validation takes place only from the date of recording of the accrescing title, the lease itself or a subsequent assignation, nevertheless, remains the foundation of the prescriptive progress.
When an application for registration includes a lease by an uninfeft proprietor, the procedure to be followed is precisely the same as for feu writs granted by uninfeft proprietors (see Feu writs and leases granted by uninfeft proprietors.).
(b) Leases granted by debtor under an ex facie absolute disposition or assignation
By the very nature of a security granted by way of ex facie absolute disposition or assignation, the debtor is not the infeft proprietor of the subjects. Consequently, when such a debtor grants a lease of the subjects or part of the subjects, prima facie the lease has not been granted by an infeft proprietor and, on an application to register the tenant's interest, indemnity should be excluded on the grounds that the granter of the lease is not infeft.
There is, however, a certain amount of case law on this subject that holds that in certain circumstances the debtor under such a disposition or assignation retains an implied power or mandate to lease the subjects. If such a power or mandate exists, then the fact that the debtor is technically uninfeft does not matter and there is no need to exclude indemnity. Unfortunately, however, this power or mandate can be restricted or lost entirely depending on the terms of the back letter to the ex facie absolute disposition or assignation, and may be lost if certain other circumstances pertain.
This is a very complicated area of law and it is impossible to formulate a clear instruction for the guidance of registration officers. Accordingly, any registration officer who is faced with an application to register the tenant's interest under a lease, where the granter of the lease is the debtor under an ex facie absolute disposition or assignation, and there has been no reconveyance or re-assignation of the subjects, must requisition the back letter if it is not submitted with the case and then submit the case to the Legal Services for a decision as to whether indemnity should be excluded or not.
In a case where a head lease is not recorded, or has been recorded but the recording is invalid, a sub-lease out of it may still be registrable, provided the head lease meets the criteria for validity for an unrecorded lease and the sub-lease meets the requirements for a registrable lease.
It is not competent for the tenants in a lease to grant a sub-lease for a period exceeding the term of their own lease. Any agent presenting such a sub-lease for recording or registration should be asked to reconsider the position. If his decision is that the deed should be recorded or registered as it stands, the matter should be referred to the Legal Services for further action. Depending on the circumstances, it may become necessary to refuse to record the deed or to exclude indemnity.
The impact on a sub-lease of an attempt to terminate the head lease is discussed in Termination of lease – effect on subsidiary interests.
19.5 Former requirements for leasehold interests
Certain matters which were formerly essential requirements for a registrable lease have been abolished by subsequent legislation. These requirements cannot, however, always be ignored in relation to leases first recorded prior to the amending legislation.
The requirement of section 18 of the 1857 Act, that the extent of the lands let must not exceed 50 acres, and that the lease must contain a statement to that effect, was abolished by section 18 and schedule 6 of the 1974 Act. By that same section and schedule, the minimum duration for a registrable lease is reduced from the 31 years required by section 1 of the 1857 Act to a period exceeding 20 years. Section 18 and schedule 6 of the 1974 Act are not retrospective. Therefore, a lease recorded prior to 1 September 1974 which did not meet the requirements of the pre-1974 legislation is not validly recorded. It may, however, be validly recorded or registered after 1 September 1974, if it meets the requirements of the post-1974 legislation.
An unrecorded lease, to be enforceable against singular successors of the landlord, must be valid according to the law in force prior to the passing of the Registration of Leases (Scotland) Act 1857, i.e. according to the requirements of the Act of the Scots Parliament of 1449. The only requirement of that Act which has not been repealed in legislation relating to registration of leases is that there must have been ‘such open and continuous possession as may naturally suggest to a singular successor the existence of a lease’.
19.6 Application to register leasehold interest where the original Lease cannot be found
The Keeper may receive applications for the first registration of previously unrecorded leasehold interests where the original Lease or an extract thereof is not submitted because it is not in the possession of the applicant and he or she has been unable to trace it. This section sets out the guidelines for dealing with such a case.
As it is obviously preferable to have a sight of the original lease, the first thing the legal registration officer should do is to ascertain if there is any information in the search sheets which will assist in tracing it. There are two possible ways in which the search sheets may be helpful. Sometimes, even though the lease has not been recorded, information in an assignation submitted with the application may enable the registration officer to discover the identity of the current landlord, who may well hold a copy of the lease or even the original. In cases where the application relates only to a part of the subjects in the original lease, it may well be that the lease will have been recorded in the Sasine Register along with an assignation of another part of the subjects. Such a recording could be traced through the search sheets and will enable at least an extract of the lease to be obtained. If an initial search by the registration officer reveals information of this nature, which may assist the applicant to trace the original lease or an extract or a copy of it, this should be passed on to the applicant and the case placed in standover until the applicant has exhausted these avenues of enquiry.
Once it has been established that the original or a copy of the lease cannot be traced, the registration officer must then consider how to deal with the application. If the subjects let under a lease lie within an operational area then, in terms of section 3(3) of the 1979 Act, a new lessee (this includes an assignee or successor) can only obtain a real right to the tenant's interest by registration. He cannot rely on possession as is the case with subjects outwith the operational areas for registration of title. It is obviously of paramount importance that some form of title to the tenant's interest be registered if at all possible, even though the original lease is missing. The want of the lease is not an insurmountable obstacle. It is the effect of the lease, not the lease itself, which is registered, so the Keeper can register the leasehold interest without necessarily seeing the lease if he is satisfied with the other documents and evidence produced.
Basically that is the key question. What documents and evidence are necessary to satisfy the Keeper in this kind of situation? A prescriptive progress of unrecorded assignations (in this case the prescriptive period is 20 years), allied to possession, is sufficient to give the applicant a title which is not open to challenge by any other person claiming the leasehold interest. In the absence of the lease, however, that is not sufficient to give him a title which is not open to challenge by the landlord.
The three principal matters on which the landlord could challenge the title are non-payment of rent; the extent of the subjects let; and the duration of the lease. If the amount of rent, extent of subjects and duration of the lease are set out in any of the assignations submitted in support of an application for registration, it may be acceptable to accept that the statement of these particulars in the assignation is correct and to use these particulars culled from the assignation in the preparation of the title sheet, depending on the circumstances and the value of the interest. Such cases should be referred to a senior caseworker, who will assess whether the application can be accepted and – if so – whether indemnity should be excluded.
In all such cases, the registration officer must remember to include a burdens section entry for the lease, in the following style viz.:
It is normally the case, however, that assignations do not set out particulars of the three important matters of amount of rent, extent of subjects and duration of lease or at the most set out only one or two of these matters. What the Keeper can issue by way of a title sheet depends on what information is available. The effect of the omission from the assignations of each one of the important matters must be considered individually.
19.6.1 Rent
The Keeper's indemnity does not cover irritancy for breach of a term or condition, provided that that term or condition is set out in the title sheet. Obviously if the amount of the rent is not known it cannot be set out in the title sheet, but if it is clear from the title sheet that there is an obligation to pay rent, the Keeper's indemnity would seem to be protected. Accordingly, if it can be made clear in the title sheet that there is an obligation to pay rent, the tenant's interest can be registered without exclusion of indemnity on the question of rent. The same is true regarding other burdens in the lease, so the registration officer must remember to insert a burdens section entry for the lease as indicated in the immediately preceding paragraph. In fact, this must be done in all cases where the original lease or a copy cannot be produced. If it cannot be shown elsewhere in the title sheet, it is in this burdens entry that the obligation to pay rent must be contained e.g.:
In a number of cases, whether the subjects are leasehold or feudal, where the description in the deed is inadequate to enable the subjects to be identified on the O.S. Map; the Keeper may accept a supplementary plan from the applicant with a statement that the subjects delineated on the plan are the subjects in the deed (see Certified plans ). This technique can equally be applied in leasehold cases where the original lease is missing; if the applicant supplies a plan and statement, registration can proceed without exclusion of indemnity as regards extent, subject to the normal criteria for certified plans being met.
In terms of section 8 of the 1974 Act, every lease granted after commencement of that Act (1 September 1974) has an implied condition that no part of the subjects let shall be used as or as part of a private dwellinghouse. Breach of that condition does not, however, make the lease void; it is merely voidable at the instance of the landlord. The Keeper's indemnity does not cover loss arising from breach of a condition set out in a title sheet or implied by law. However, in terms of section 3(1)(a) of the 1979 Act, a registered interest is subject only to the effect of any matter entered in the title sheet and to any overriding interest whether noted or not. As the said implied condition of section 8 is not an overriding interest as defined in the 1979 Act, it is necessary that the Keeper discloses within the title sheet that a lease which has been executed after the commencement date is regulated by the provisions of the 1974 Act, otherwise the implied condition will not be enforceable and the purpose of the Act may be defeated. This will be achieved by adding the following footnote to the entry for the lease as set out in the burdens section:
The footnote will of course not be necessary where there is an express statement within the lease itself that the provisions of the 1974 Act apply. Where there is merely a conventional restriction as to the use of the premises let and fenced with the usual irritancy and resolutive clauses, the footnote must be added to the title sheet so that it will prevail over any subsequent waiving of the condition.
Section 1 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 permits the renewal of a residential long lease granted before 1 September 1974, provided the renewal is granted in implement of an obligation to renew contained in the original lease. This has been achieved by appropriate amendment to section 8 of the Land Tenure Reform (Scotland) Act 1974, the provisions of which had inadvertantly precluded the renewal of existing residential long leases to the prejudice of the ‘sitting’ tenant. Section 1 acts retrospectively, thus validating renewals granted before 30 December 1985.
The only known area where such renewable leases exist is Rattray Estate, Blairgowrie. Any other renewals, or purported renewals, of residential long leases should be referred to the Legal Services.
19.8 Breaches of leasehold conditions
Breaches of conditions or burdens in a lease are outwith the scope of the Keeper's indemnity, which indemnity will therefore not be excluded. The following examples will be considered merely as conditions of the lease:
Evidence need not be sought that conditions have been complied with (see Rights of pre-emption).
Despite what is said in the preceding sentences about indemnity not covering loss arising from the breach of a condition, the Agency should seek to avoid issuing a fully indemnified certificate of title in respect of a lease which has already terminated, or a fully indemnified charge certificate in respect of a heritable security secured over such a lease. If, therefore, a lease contains a condition that it will automatically terminate on the occurrence of a particular event (e.g. the sequestration of the tenant, or the appointment of liquidator or receiver), the registration officer should ensure, so far as possible, that such an event has not occurred before the date of receipt of the application. The occurrence of such an event should be revealed in the answers to the questions on the application form. If, however, the value of the leasehold interest is high, or the registration officer has reason to suspect the occurrence of such an event, he should ask the applicant for up to date certification before completing registration.
19.9 Feu deed containing renunciation of lease
When a Form 1 application is received, the deed inducing registration (DIR) being a feu deed which contains in gremio a renunciation of a registered lease, the case will be treated as a joint registration/recording. The feu deed must not only (a) have a warrant of registration on behalf of the landlord/superior and (b) bear the title number of the leasehold interest, but also (c) have a description of the lease capable of recording in the Sasine Register (i.e. a mere reference to the leasehold title number will not do). It is also necessary that, unlike other joint recording/registrations, recording and registration must be contemporaneous.
It is thought quite likely that applications of this type may be deficient in one or more of (a), (b) and (c) above. Furthermore, it will be difficult for intake section to pick out such deficiencies so that, in all probability, the case will proceed through the land registration process. However, when at Plans Ident the subjects are found to be already registered, the legal registration officer should be alerted. The latter will inform the agent of any deficiencies and return the DIR. to have these remedied. Before sending the deed to the agent, the legal registration officer will examine the deed carefully for anything that may necessitate its possible withdrawal from Sasines on its return, and also ask the Agent to return it to him/her personally.
On its return, the legal registration officer will photocopy the deed, cancel the previous registration and ensure that the deed is recorded in Sasines as well as the application re-registered in the Land Register on the same day. If the application is made correctly for joint recording/registration and the DIR. is correct in all respects, it is the responsibility of the legal registration officer to ensure that registration and recording are contemporaneous.
Both the minute showing only the renunciation of the lease and the closing note showing the feu deed are entered on the landlord's/superior's search sheet. The title sheet for the leasehold interest is cancelled and the registration of the feu deed will proceed in the normal way. The registration fee will be charged in the Land Register, with an additional minimum fee being charged for recording in the Sasine Register.
When a Form 1 application is received, the DIR. being a feu deed which contains in gremio a renunciation of a recorded lease either in whole or in part, the feu deed should have a warrant of registration on behalf of the landlord/superior.
If the deed is in order, then a photocopy will be taken for Land Register purposes and the original recorded in Sasines. This is because the deed, in renouncing the landlord/tenant relationship in Sasines, creates a superiority interest which remains in that register and if it is not recorded then the feu will be burdened by the tenancy.
If the deed does not have a warrant, then it will be returned to the ingiving agent, who will be advised to contact the landlord's/superior's agent with a view to having a warrant adhibited and the deed presented for recording in Sasines. Both the minute showing only the renunciation of the lease and the closing note showing the feu deed are entered in the landlord's/superior's and the tenant's search sheets. The registration fee will be charged in the Land Register, with an additional minimum fee being charged for recording in the Sasine Register. If the agent declines to record the deed in Sasines, the case should be referred to a senior caseworker.