KNOWLEDGE

A cautionary tale to draft title conditions with care

Morton Fraser Partner Alan Stewart
Author
Alan Stewart
Partner
PUBLISHED:
26 June 2023
Audience:
Real Estate
category:
Blog

In the case of Castle Street (Dumbarton) Developments Limited ("Castle Street") against Lidl Great Britain Limited ("Lidl"), the Lands Tribunal for Scotland was asked to consider whether a real burden which attempted to prevent other supermarkets occupying the land adjacent to the Lidl in Dumbarton was valid and enforceable.

The burden was worded as follows:-

"So long as the granter of this Disposition (or another member of the same group of companies) is either a proprietor of or occupies the whole or part of the Retained Property, no part of the Conveyed Property shall be occupied by either (a) any of Aldi, Farmfoods, Iceland, Home Bargains, Tesco, Asda, Sainsbury and/or Morrisons or (b) any operator whose convenience (food) offer accounts for 30% or more of the sales areas of their property on the Conveyed Property."

Castle Street sought to challenge the validity and enforceability of the real burden on the grounds that (1) it contravened the praedial rule, (2) it was an unreasonable restraint of trade and (3) the extent of the real burden wasn’t clear from the deed, in other words it violated the "four corners" rule.

The Praedial Rule

The Praedial rule is a well-established principal in the law of real burdens. The rule requires a real burden to confer a benefit on the owners, occupiers or tenants of the benefited property from time to time, whoever that may be, and the benefit must enhance or at least protect the value of the property. Put simply, a real burden must be concerned with property and not merely with its owner.

Castle Street argued that the real burden conferred a benefit only on the Lidl group of companies and if they sold the land, then the burden ceased to benefit the property.  The real burden was personal and not praedial. Further, the burden did not enhance the value of the property or enhance or protect the value of the property in a way that could be passed onto singular successors, it was "intensely personal" to Lidl.  Lidl sought to argue that this was not the case on the basis that they could let out the benefited property, including to rivals, and the tenant would benefit from the burden however Castle Street disputed this on the basis, that if the land was sold, then the new owner would not benefit from the real burden.

The Lands Tribunal agreed with Castle Street that the real burden was not valid and enforceable as it was personal and not praedial. The real burden did not run with the land but instead was designed so the effect would be that it runs with the ownership or occupation of the land by a particular class of persons.

Unfair Restraint of Trade and the "Four Corners" Rule

The second argument raised by Castle Street was that the real burden was an unreasonable restraint of trade. The Title Conditions (Scotland) Act 2003 states that a real burden must not be contrary to public policy as for example an unreasonable restraint of trade and must not be repugnant with ownership (nor must it be illegal).

Castle Street argued that the real burden was clearly a restraint of trade and such conditions were prima facie unlawful and contrary to public policy. The Lands Tribunal's position was that such an argument would have required further exploration as to whether the burden was reasonable in the circumstances. The Tribunal didn’t consider this further as it wasn’t a question that they needed to address on the basis that they had already found the burden to be invalid as it didn't meet the praedial test.

The third argument raised by Castle Steet was that the real burden violated the "four corners" rule. The "four corners" rule is another fundamental principle of the law of real burdens which requires the precise content of the burden to be ascertained from the title of the burdened property without the need to look beyond it.

Castle Street argued that the description of those occupying any part of the burdened property did not identify the legal persons or natural persons that were covered and instead used only brand names. This meant that it was not clear how far and to what entities the burden covered. Lidl argued that the use of brand names was not an incurable problem and that further specification would have been counter productive as the restriction could be circumvented by the creation of new companies. Brand names on the other hand were unlikely to be departed from on the basis that supermarkets worked hard to develop their branding. The Lands Tribunal agreed with Lidl that the use of brand names didn’t cause a particular problem.

Summary

The Lands Tribunal focused on the praedial rule in this case and the burden was found to be invalid on this ground. Whilst Castle Street argued that the burden also constituted an unfair restraint of trade, this was not considered in any detail by the Lands Tribunal as the burden was struck down on other grounds. Although it is not the case that all restraints of trade will be problematic, in the future it may be that we see more cases being brought on the basis that similar anti-competitive restrictions are an unreasonable restraint of trade. What is clear is that care needs to be taken when drafting title conditions to ensure that they comply with the strict rules of constitution.

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