Mon 07 Aug 2023

Scottish property law cases - the best of 2023 (so far!)

As we pass the mid-point of 2023, we look back and reflect on some of this year's most important and relevant cases impacting on property law. In a year which has already provided numerous interesting decisions we have chosen our top five.

A reminder of the rules for constituting valid and enforceable title conditions:

Castle Street (Dumbarton) Developments Limited v Lidl Great Britain Limited

When it comes to drafting real burdens in Scotland there are strict rules to follow in order to constitute a valid and enforceable title condition. For example, a real burden must not be contrary to public policy, e.g. as an unreasonable restraint of trade, and a real burden must confer benefit on a property and not just its owner (the "praedial rule").

In this case, the Lands Tribunal was asked to consider whether a purported real burden which attempted to prevent other supermarkets occupying land adjacent to a Lidl store was valid and enforceable. As the burden was drafted so as to benefit only Lidl (so long as they owned the neighbouring property), it was held to be invalid as it was personal and not praedial. The real burden did not run with the land nor enhance or protect the value of the land for any third party who might buy it. It failed the praedial test and was, as a result, unenforceable.

Whilst it would have been interesting to hear the Lands Tribunal's views on whether this restriction was an unfair restraint of trade, this aspect wasn't considered as the burden fell at the first "praedial rule" hurdle. Despite this, the decision serves as a useful reminder that care needs to be taken when drafting real burdens to ensure that they are valid and effective.

Serving notices - the difficulties continue

Lujo Properties Ltd v Gruve Ltd

Over the years there have been numerous cases about whether notices under leases have been properly served and this year is no different. In this case, the debate was whether a pre-irritancy warning notice, which had been sent by recorded delivery post but returned as undelivered, had been validly served. 

Irritancy allows a landlord to terminate a lease prematurely because of a tenant's breach and the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 ("the 1985 Act") contains certain tenant protections. These include, in the case of monetary breaches, a requirement that before a lease can be irritated, a landlord must serve an irritancy warning notice on the tenant allowing at least 14 days to pay the arrears. 

Here, the landlord had sent a pre-irritancy warning notice to the tenant by recorded delivery post; however the notice was never received by the tenant. The Sheriff found that whilst the pre-irritancy requirements under the 1985 Act were complied with (for this purpose it didn't matter that the notice had not been received by the tenant), the terms of the lease required that the pre-irritancy notice had to be actually received by the tenant, not merely sent.

The Sheriff focused on the wording in the lease that required the landlord to have "given" written notice to the tenant and held that this presupposed actual receipt by the tenant.  Even though the lease contained fairly standard "sufficient service" and "deemed service" provisions it was held that these did not give rise to an irrebuttable presumption of delivery upon proof of proper posting. Proof that notice had not been received could overturn the presumption and because the notice had not actually been received by the tenant the Sheriff found that service had not occurred under the lease and that the irritancy was therefore invalid.

In addition, it was held that even if the notice had been validly served, the landlord had acted oppressively in exercising its right of irritancy. The landlord had knowledge that the notice, though validly served for the purposes of the 1985 Act, had not actually been received by the tenant and despite being in contact with the tenant had not alerted the tenant to the fact that the irritancy warning notice had been served.

This decision unfortunately only adds to the uncertainties and complexities surrounding the proper service of notices.  Whilst it may be appealed, the case is just the latest in a long line of decisions which emphasise the need for both landlords and tenants to get specialist advice when notices are at play.

Getting rid of troublesome title conditions

Inspire Scotland CC Limited v Wilson and Others

If a title condition prevents an owner from using their property as they wish the owner has various options. If the burden is more than 100 years old, it can often be brought to an end under the "sunset rule" by service and registration of a notice of termination. Alternatively, the owner may ask the person entitled to enforce the burden for a minute of waiver or may decide to apply to the Lands Tribunal for variation or discharge.

In this case, Inspire Scotland CC Limited, who wished to use a property as a residential care home for young persons, applied to the Lands Tribunal to vary a real burden which restricted the use of a property to a "private dwellinghouse for the accommodation of one family only".

When an application to vary a real burden is made to the Lands Tribunal, the Lands Tribunal must decide whether it is reasonable to grant the application having regard to the factors set out in s100 of the Title Conditions (Scotland) Act 2003. These include any change in circumstances since the title condition was created, the extent to which the burden confers benefit on the benefited property, the extent to which the condition impedes enjoyment of the burdened property and the purpose of the title condition.

In this case the Lands Tribunal held that it would be reasonable, on the balance of factors, to vary the title condition so as to permit the proposed use. Whilst the real burden was still relevant (its purpose being to preserve amenity for the families' occupying properties within the area) and whilst it was accepted that the proposed use may bring with it an increased risk of anti-social behaviour, the Lands Tribunal were of the opinion that this had to be weighed against public interest considerations (the fact that the reasonable aim of providing care to young persons in as normal as possible a home setting would be thwarted without a variation of the title condition).

This case provides a useful example of the factors that the Lands Tribunal will take into account when considering an application to vary a title condition and demonstrates the significant weight which the Lands Tribunal seem to be willing to place on public policy objectives.

Is it a lease or a licence?

Sherriff v O'Rourke

This case highlights the difficulties which can often be encountered when trying to distinguish a Scottish licence to occupy from a lease, an issue which has troubled the courts on numerous occasions over the last few years.

The distinction can be of great importance as a lease gives a tenant a real right in the property that is not just enforceable against the person who granted it but also against successor owners.  A licence, in contrast is personal to the parties and is normally used where the parties are looking for a short-term arrangement with more flexibility. There are also other differences including significant differences in the treatment at termination.

In deciding whether an agreement amounts to a licence or a lease the label given to the document is unimportant - the court will instead look at the substance of the agreement. A licence to occupy is a contract for enjoyment of some aspect of property but which falls short of conferring the full rights of a lease.  It can be defined, for example, as not allowing exclusive possession or not containing one of the cardinal elements of a lease (parties, premises, rent and duration).

In this case, the agreement in question was poorly drafted with inconsistencies throughout and the court held that it was a licence as the drafting made clear that some type of limited use of the property was intended. 

Whilst a licence to occupy can be a useful tool where parties are seeking a relatively informal arrangement for a short term without the burden of more onerous lease conditions, care needs to be taken when drafting to avoid the arrangement actually being held to be a lease. As has been demonstrated over the years, the distinction often isn't an easy one to make and as the Sheriff pointed out in this case "the penalty for poor drafting is litigation"!

Knowing your servitude rights

Logan v Irons

A servitude is a right over a piece of land (the burdened property) for the benefit of another property (the benefited property). Having the necessary servitude rights over neighbouring properties for example for access or services is essential if disputes are to be avoided.

In this case, the benefited and burdened property in a servitude came to be owned by the same party. When the ownership of the two properties was later divided again, there was a dispute about whether the servitude still existed. The decision confirms the common law rule that when a burdened property and a benefited property in a servitude come into the same ownership, the servitude is extinguished by the doctrine of confusion and the rights do not revive when the properties are divided again.

Whilst it was held that this servitude right had been extinguished, the owner of the benefited property was able to establish that a new servitude had been created by implication when the properties were divided. An implied servitude arises where, in the absence of express words or a deed, the facts and circumstances are relied on for its constitution. For a servitude to be created in this way certain conditions must be complied with including that the servitude claimed must be reasonably necessary for the comfortable enjoyment of the benefited property, the properties must have been in the same ownership previously and the purported right must have been used before severance of the properties.

In this case an implied servitude came to the rescue however courts are generally reluctant to recognise such servitudes and so they may not always provide a get out of jail free card. It is therefore imperative when properties are divided to think about all rights which may be required over the respective parts to ensure that both/all properties can be used independently of each other.

Hopefully the second half of 2023 will provide us with more interesting cases to consider!

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