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Farewell To Ultra Long Leases: Will Your Property Be Affected?

Farewell To Ultra Long Leases: Will Your Property Be Affected?

The Long Leases (Scotland) Act 2012 will come into force in Scotland on 28 November 2015. The Act is the last to be implemented of a series of legislative reforms to modernise Scottish property law, which began with legislation to abolish the feudal system in 2000.

Legislation in 2000 restricted the length of new commercial leases to a maximum term of 175 years. However some “ultra long” leases of a longer term remain in force. Tenants under such leases have long been regarded as the owner of the property in all but name. On 28 November 2015, the tenant’s interest under a qualifying lease will automatically convert to outright ownership of the property and the landlord’s title to the property will be extinguished.

Qualifying Leases

To qualify for conversion to ownership, a commercial lease must:-

  • Have originally been granted for a term exceeding 175 years
  • Have an unexpired duration of more than 175 years
  • Have an annual rent of £100 or less
  • Not have been granted for the sole purpose of the installation of pipes and cables
  • Not be a lease of a harbour or minerals

Action Required By Landlords

Although the landlord’s right of ownership of the property will be extinguished, a landlord who ceases to be the owner may retain certain limited rights. Some of these are preserved by the Act without any requirement for action by the landlord. Others will only be preserved by the service, and in some cases registration, of a notice. These include:-

  • The conversion of certain leasehold conditions into burdens on the title to the property, so that they remain enforceable. A notice must be served and registered prior to 28 November 2015.
  • The right to continue to exercise access rights and other rights which resemble servitudes. Such rights are automatically preserved with no action required.
  • The right to continue to exercise sporting rights. A notice must be served and registered before 28 November 2015.
  • The right to claim compensation from the tenant for loss of rent.  A notice must be served on the tenant after 28 November 2015 but prior to 28 November 2017.
  • The right to claim an additional payment from the tenant in consideration of the loss of certain other rights, such as development value.  A notice must be served on the tenant after 28 November 2015 but prior to 28 November 2017.

Right to Opt Out

Tenants have the right to opt out of conversion of their leasehold right into ownership, by registration of a notice prior to 28 September 2015. It has been suggested that tenants may wish to opt out in order to avoid paying compensation to the landlord for loss of rent, but it is expected that most compensation payments will be relatively low.

The landlord has no right to opt out.

Will Your Property Be Affected?

It is important that both landlords and tenants review their property portfolios now to identify any qualifying leases, so that they are not caught unaware on 28 November and can serve any required notices in good time. If you think that your property may be affected, please contact us for advice.

Laura Hay
Associate

LChalmers