Posted: Tuesday 21 February 2012
Long Leases (Scotland) Bill: preservation of lender’s rights
By John Lunn
You may well ask what possible relevance the Long Leases (Scotland) Bill has in relation to banking and finance, but bear with me for a moment.
The Bill was re-introduced by the Scottish Parliament on 12 January 2012, and is based on a draft Bill produced by the Scottish Law Commission (SLC) in 2006 as part of its Report on Conversion of Long Leases. As stated in the Policy Memorandum which accompanies the Bill:
“The Bill converts ultra-long leases into ownership. An ultra-long lease qualifies if it has been granted for more than 175 years and has more than 100 years left to run immediately before the appointed day laid down in the Bill. On the appointed day, all qualifying ultra-long leases will convert automatically into ownership, unless the tenant chooses to opt out. In some cases, compensatory and additional payments will be payable to the landlord by the tenant and some leasehold conditions will be preserved as real burdens in the title deeds.”
The Bill itself has been generally welcomed. In reality the tenant’s interest under a registered “ultra-long” lease has been treated as (almost) the equivalent of absolute ownership, and such leasehold title in Scotland is now a bit of an anachronism. Note that leasehold title in England and Wales is an entirely different concept – but that is a story for another day.
There may be some unintended consequences of the Bill (see the interesting story about Edinburgh’s Princes Mall shopping centre), but the expectation is that these can be sorted out as the Bill passes through Parliament.
The reassuring news for banks and other financial institutions holding a heritable security (a “standard security”) over the tenant’s interest in a leasehold title in Scotland is that, after conversion, the “converted land” will remain subject any heritable security which affected the qualifying lease immediately before the appointed day. While the drafting of the relevant clause of the Bill could, in my view, be better (see clause 6 – where such securities are encompassed by the expression “subordinate real rights”), the bottom line is that there will be continuity of security for the holder of the security. Indeed, I would go so far as suggesting that if you are such a bank or financial institution, you need take no action whatsoever.
