8.5.2 Leases: Criteria for Registration

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) applies, however, 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.

The requirements of a registrable Lease are

(i.) It must be probative

(ii.) Its term must exceed 20 years, or be capable of being renewed, without any subsequent agreement, is that its total duration exceeds 20 years and

(iii.) A rental must be stipulated (but it may be illusory).

Only LONG LEASES are registrable, i.e. the term exceeds 20 years. Also, in order that a Lease may be shown as an overriding interest on a Title Sheet, it must exceed 20 years in its term.

In many cases, the term of the Lease is quite clear e.g. 99 years or 999 years, but care must be taken regarding those Leases with a term just on the 20 years. If the period of the Lease is expressed by reference to the term day (e.g. Whitsunday 1989 to Whitsunday 2009) the period does not exceed 20 years because convention dictates that the entry and ish (in the case of Leases, this means the end of the period) on a term day is taken to occur at noon on each of these days. However, if the period is expressed by reference to calendar date, (e.g. 15th May 1989 to 15th May 2009, the period does exceed 20 years as convention dictates that the whole of the days defining the period are included.

Any application discovered at any stage in Plans where the Lease does not appear to be registrable, or where there is doubt, should be referred to Legal Staff for clarification.

The Land Tenure Reform (Scotland) Act 1974, amongst other things, prohibited the creation of new feuduties and set up the machinery for the redemption of existing ones. It was feared, however, that this might cause a massive switch to leasehold tenure by developers, then virtually perpetuating the feuduty system by another name. Whilst Leases over Commercial and Industrial Properties were allowed to continue, new long Leases i.e. over 20 years are prohibited over wholly domestic or residential properties.

NOTE: This does not apply to Leases created before the 1974 Act nor Leases where the term is extended after the Act.

An application seeking the registration of a Lease, or a sub-Lease created after 1974 that appears to be for residential property should be referred to the Legal Examiner. The registration can proceed, but probably with an exclusion from indemnity: the reason being that the landlord can, under the terms of the 1974 Act, give the tenant, at any time, twenty eight day's notice to stop the residential use, failing which, the Lease may be terminated. Normally, the landlord should know his property, but conversions may take place, or a ground Lease may be granted without the landlord being aware of the type of property being erected.

Because of the availability of collecting dues from land by Feuduty, residential Leases have always been fairly rare, not least because the Long Leases (Scotland) Act 1954 allowed certain Long Leases to be converted into feus by the tenant serving notice on the landlord.

8.5.3 Types of Lease Tenure

8.5.3.1 Residential Or Domestic Leases

These are fairly rare, not least because feued property is more common, and historically provided a good source for the collection of dues (feuduty). By the terms of the Land Tenure Reform (Scotland) Act 1974, new Long Leases of Residential property are prohibited.

8.5.3.2 Leases of Use of Land

(i.) Mineral Leases

These are fairly rare, especially since the nationalisation of coal, but can still be found in respect of other types of mineral. Logically a mineral Lease could be considered to be regarded as a sale as the "subjects" are gradually removed by the tenant.

(ii.) Salmon fishing, or sporting right Leases

The Lease grants the rights as suggested by the above wording: it conveys an idea of a 'licence' but is traditionally accepted as a Lease for legal purposes.

8.5.3.3 Kindly Tenancy

A strictly local phenomenon found in Lochmaben in Dumfriesshire. It is a strange hybrid of tenancy and ownership under which the "tenants" have a potentially perpetual right along with an absolute right to sell, but can be removed if the rent is not paid.

When eventually lodged in the Land Register, the effect will be to make the tenants proper owners and absorb them into the general system.

8.5.3.4 Tenancy At Will

More common than kindly tenancies, historically found in fishing and rural villages on the north-east coast, in highland villages and in a mining village in Lanarkshire*. A recent court ruling, however, suggests that a Tenancy at Will can be formed anywhere in Scotland.

It is an informal type of ground Lease where the tenant rents land from a landowner in order to build his own house, but is given no formal title and can be removed on non-payment of rent.

* Regrettably, up to the time of 'publication' of this manual, the name and location of this village could not be ascertained** (Information taken from a Legal reference book).
**  The village in question is likely to be Leadhills.  Source: The Report of the Scottish Land Enquiry Committee (Hodder and Stoughton, London, 1914), p323

8.5.4 Assignations And Sub-Leases - The Difference

An Assignation is where a tenant transfers his interest in a Lease to another person (called an assignee), who thereafter takes his place as tenant under the original contract. The Assignee becomes directly liable to the landlord for the rent and other obligations of the Lease, and the original tenant (then referred to as the cedent) is relieved of all responsibilities. An Assignation may comprise part or whole of the original Lease. An Assignation of a registered lease is a Dealing with Whole: an Assignation of part of a registered Lease is a Transfer of Part as a new, separate, title is created.

In the case of a sub-lease, the tenant creates a second Lease between him and the sub-tenant, but his relationship to the landlord is unchanged, and he remains directly liable to him for payment of the rent and performance of the obligations under the original Lease. There is no legal obligation between the landlord and the sub-tenant. A sub-lease may comprise the whole or part of the original Lease. Normally, the original Lease has an 'alienation clause' which states that the landlord must be approached for consent to any assignations or sub-lets. A sub- lease is a creation of a new, separate title similar to disponed or feued breakaways, and where the interest, out of which the sub-lease is created, is registered, the sub-lease will be a Transfer of Part.

It occasionally occurs that a sub-lease is created which forms a tenancy between the landlord and the original tenant. The new interest is referred to as an Interposed Lease and may have a term equal to, longer or shorter than the original term. The most easily understood reason why such an occurrence can prove to be a logical step in the case (say) of a development company which has completed a project (either on land that they own or hold a lease) which, after leasing out the various units, wants to retain the development as an investment without having the trouble of day to day management. They achieve this by interposing a Lease to a management company between them (the developers) and the tenants of the individual units. These sub-tenants are therefore responsible to what is now their new landlord.

If the situation, as regards registration, is clear, mapping and settling of the Interposed Lease can be completed in the normal way except that the interest will be completed as "mid-landlord" in the A Property Section, and the same term inserted in the Case Notes on the DMS Maintain Title Details. Any doubts should be raised with a senior officer (plans) who may wish to consult the Legal Settler. However, the situation is not so vital that the Legal Settler cannot amend the interest as appropriate, and the remarks column left blank as the Title Sheet will reveal the situation when needed.

8.5.5 Leases - Plans Action

Applications to register Leases require preliminary checks before any normal mapping or investigatory work is commenced as follows:

(a) The Lease is a long Lease, i.e. the term is in excess of 20 years

(b) It is probative

(c) A rental is stipulated, and

(d) The landlord's interest is produced. (The deed that dispones (or assigns) the land to the landlord must be lodged: earlier progress of title is not necessary).

The warrandice clause should be given special attention where the Lease being registered comprises a shopping or industrial complex: previous Leases may be excepted from warrandice, and consequently references on the Title Plan may be required.

Reference should be made to a senior officer where the subjects are found to be affected by prior Leases. Should prior leases be noted, but the relevant deeds are not lodged, and there is no comment by the applicant stating that they are not long leases, a pre-printed form (L84) is sent which requests that long Leases are lodged so that their details can be noted in the Title Sheet (and referenced, where possible, on the Title Plan) as Overriding Interests. The applicant can, however, decline to have such interests noted.

Thereafter, the mapping, indexing, settling etc. proceeds in the same way as any other First Registration. The same considerations can arise e.g. extent problems etc.

Refer to the appropriate sections for mapping styles, indexing, notes to the Legal Settler and consideration of casework problems as necessary.

8.5.6 Lease - Calculation of Value

The annual amount of rent usually quoted on the Form 1, or the consideration paid in respect of an Assignation of a Lease, does not adequately reflect the true value of the property: it must be borne in mind that the purpose of knowing the value of a property is linked with the size of a potential claim for indemnity.

The determination of the value for leasehold casework is achieved by multiplying the stated value by ten, but the initial figure depends on one of two factors:

(i.) where the DIR is a Lease, the value is a straight- forward ten times the stated annual rent, e.g.

£25,000 per annum x 10 = £250,000

(ii.) where the DIR is an Assignation, the value is initially determined as above but then the consideration is added, e.g.

£25,000 per annum x 10 + £100,000 = £350.000

(The annual rent will be stated in the Lease referred to in the Assignation, but see below).

IMPORTANT

Where the DIR is an Assignation and the value is calculated as explained above, be sure to check any Deeds or Minutes of Variation that may be lodged with the casebag documents, or may be contained in attached DW casebags. The deed may vary (increase), the rent payable affecting the calculation. The calculation is therefore made using the higher figure.

For practical purposes, the value of Leases that refer to (e.g.) "annual increases in rent, proportional to and in accordance with the level of market rentals of comparable premises prevailing at the time...." will be calculated at the initial rent (or a specific amendment made in a Deed of Variation). This is assumed adequate, as logic dictates that as values increase due to inflation etc., so the settling values are also re-calculated and should therefore keep reasonable pace with the increases.

8.5.7 Registrations of Floor Levels in Commercial Properties in Leasehold Applications

It has been found in the past that delays can be caused in processing registrations of floor levels in commercial properties in leasehold applications. Due to the poor quality of the description of the extent of the interest to be registered.

In the main registrations for leasehold interest in commercial properties can be split into four categories based on the description of the property contained in the lease as follows

Category One - By reference to a plan which is of sufficient accuracy and quality to enable it to be easily compared and reconciled with the Ordnance Map. Such a plan can normally be relied upon to plot extents precisely on the Title Plan or used to prepare a Supplementary Plan

Category Two - By reference to a plan, which is deemed to be demonstrative only, but is still adequate for registration purposes.

Category Three - By reference to a plan, which is deemed to be demonstrative only and, due to its "floating shape" quality (i.e. lack of orientation or sufficient surrounding detail), cannot safely be used.

Category Four - By verbal description of the floor level involved, this usually includes a measured floor area which is normally the only indication of whether or not the whole floor is to be registered.

In the interests of more effectively handling and turnaround the following procedures have been developed. However it should be stressed that these are for leasehold cases only.

(a) It is expected that practically every such case will be dealt with by the "copy in certificate" method, see Section 8.2.33 - Copy in Certificate and that site plan method will be used on the Title Plan.
(b) The Plans Officer will check the extent in the usual way by using the deed plan submitted. Where Categories 1 and 2 apply, as necessary, a new Supplementary Plan will be prepared and put up with the Title Plan
(c) In the case of a category 3 deed plan the Plans settler will produce a colour copy of the Plan, which copy will be put up with the copy lease in the Land Certificate. That colour copy will not be given the status of a Supplementary Plan. Therefore the the Plans Settler will arrange to have the image scanned and assigned to the Title Plan in normal fashion but no stamps will be added to the image nor should the "See Supplementary Plans " stamp be added to the Title Plan. A not should be added to Titles cases notes accordingly. The A. Property Section will take the following format:-

"Premises within the land edged red on the Title Plan, extending to 1000 square metres on the forth floor of Argyle House………………, which premises are edged blue on the plan annexed to the Lease, a copy of which is included in this Land Certificate"

It is implied (but not expressed) that the keeper will take no responsibility for the accuracy of that deed plan.

(d) Close consultation will be required between Plans and Legal Settlers to resolve any on going difficulties, especially as regards Categories 3 and 4.

When completing the mapping of subsequent registrations the Plans Settler must ensure that the Supplementary Plans of prior registrations are checked in order that the extents on any given floor level may be cross checked, to ensure that no overlap exists. In Category 3 cases, where the Plans Settler is not able satisfactorily to ascertain whether or not an overlap exists, he/she must so inform the Legal Settler and the latter must clarify the matter with the applicant. In category 4 cases (no deed plan), the Plans and Legal Settlers must take care to ensure that the verbal descriptions of the parts leased do not indicate an overlap.

In the event of an overlap being identified the agent who submitted the later registration must be informed and the matter resolved (e.g. by submission of a new plan); if the overlap remains unresolved the later case can proceed, subject to an exclusion of indemnity as regards the areas of overlap.

In the event of an application for registration for registration of the Dominium Utile interests in a floor level, the criteria for accurate identification of the interests to be registered (either by deed plan or by verbal description) will be more rigorous; the Plans and Legal Settlers must consult to be satisfied that the description in each case fully meets the requirements of the Land Register.