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Transmissibility of Lease Conditions in Scots Law – A Doctrinal-Historical Analysis

Document Cited authorities 32 Cited in Related
Vincent
Date01 September 2015
Pages333-359
Author
Published date01 September 2015
DOI10.3366/elr.2015.0294
INTRODUCTION

Central to the taxonomy of Scots law is a distinction between real and personal rights.1

For example, see Stair, Inst 1.1.22.

Broadly, while personal rights describe a linear legal relationship between two specific persons, real rights describe a legal relationship between a person and a “thing”, in that they are effective “against the world”.2

K G C Reid, “Obligations and Property: Exploring the Border” (1997) Acta Juridica 225 at 225–227.

 This is reflected in the distinction between the laws of property, dealing generally with real rights, and contract, dealing primarily with personal rights.3

The distinction is a well-recognised but not entirely unproblematic one – see Reid, ibid at 229-233.

Lease law sits rather precariously at the intersection between these areas. Fundamentally, Scots law follows the Roman tradition4

See generally T J R Stadnik, “The doctrinal origins of the juridical nature of leases in the civil law” (1980) 54 Tulane LR 1094.

in emphasising that a lease is primarily a contract.5

For example, Edmond v Reid (1871) 9 M 782 per Lord Cowan at 785. See also Stair, Inst 2.9.1, 2; Erskine, Inst 2.6.23, 25 and 26; Sir George Mackenzie, Observations upon the laws and customs of nations (1680) 188. For a useful overview of the debate over the nature of the rights obtained by tenants by virtue of the 1449 Act, and the subsequent Registration of Leases Act 1857, see W Guy, “Registration of Leases” (1908–09) JR 234.

 Under the Leases Act 1449, however, tenants can acquire a right in respect of land, effective against the landlord's singular successors, who become bound by the terms of that contract. While these terms continue to describe a linear, bilateral relationship, and thus remain fundamentally personal, they acquire one of the hallmarks of real rights in that they describe a relationship in respect of a piece of property, binding parties by reference to their relationship with that property. In short, under the 1449 Act, lease terms are capable of becoming “real conditions”.6

K G C Reid, “Defining Real Conditions” (1989) JR 69.

The 1449 Act thus gives rise to a tension between contract, which seeks to promote freedom in creating bespoke contractual relationships, and property, which seeks to protect third parties who may be affected by those relationships by imposing restrictions as to their content. Given this tension, it has long been recognised that not all lease terms are capable of becoming real conditions, thus binding successor landlords. There must, therefore, be some legal framework through which one can determine whether a particular lease term is “real” or “personal”. These “rules on transmissibility” play a central role in regulating such tensions, and in delineating the boundary between property and contract; between rights which are personal and those which “run with the lands”. In essence, they are rules on allocation of rights and obligations.

Given their importance, the rules on transmissibility are regrettably unclear. Questions have arisen in modern practice particularly as to the transmissibility of options to purchase7

The key case is The Advice Centre for Mortgages v McNicoll 2006 SLT 591. See also Zani v Martone 1997 SLT 1269; Scottish Wholefoods Collective Warehouse v Raye Investments 1994 SCLR 60; S Brymer, “Enforcing Commercial Lease Terms Against Successor Landlords” 2000(49) Prop LB 4–6 and 2001(50) Prop LB 3–5.

and exclusivity clauses.8

The key case being Optical Express (Gyle) Ltd v Marks & Spencer plc 2000 SLT 644. See also Warren James (Jewellers) Ltd v Overgate GP Ltd [2005] CSOH 142 per Lord Drummond Young at [16]. Equally, questions may arise in relation to terms which require the landlord to let surrounding units only to those in the same trade as the tenant – see e.g. Ralph Lauren London Ltd v Trustee for the London Borough of Southwark Pension Fund [2011] CSOH 103.

 While modern authority suggests that only those terms which are inter naturalia of a lease are transmissible,9

Optical Express per Lord Macfadyen at 650; Advice Centre for Mortgages per Lord Drummond Young at [38]; Allan v Armstrong (2004) GWD 37-768 per Temporary Judge T G Coutts QC at [9]; Warren James (Jewellers) per Lord Drummond Young at [16].

 there is considerable uncertainty as to how this test is to be applied. In particular, it is disputed as to whether the test is a qualitative one, focusing on the inherent character of a term,10

Optical Express per Lord Macfadyen at 650: “I infer … that the matter is primarily a question of the nature of the obligation, although evidence of customary practice will assist…”.

 or a quantitative one, focusing on whether a term is common in leases of a particular type.11

Advice Centre for Mortgages per Lord Drummond Young at [38]; Warren James (Jewellers) per Lord Drummond Young at [16]; Allan per Temporary Judge T G Coutts QC at [8]-[14]; W M Gloag, The Law of Contract, 2nd edn (1929, reprinted 1986) 234; A McAllister, Scottish Law of Leases, 4nd edn (2013) para 2-39; G C H Paton & J G S Cameron, The Law of Landlord and Tenant in Scotland (1967; supplement 1968) 95.

 Recent legislative reform has simply restated the law rather than attempting to reformulate it.12

Long Leases (Scotland) Act 2012 s 10(1)(b). See also Report on Conversion of Long Leases (Scot Law Com No 204, 2006) paras 4.4 and 4.16.

This article seeks to examine these rules from a doctrinal-historical perspective. It is assumed that the same set of rules applies to long and short leases.13

P Webster, The Relationship of Tenant and Successor Landlord in Scots Law (Unpublished PhD thesis, 2009) 76. For the contrary view, see S Brymer, “Enforcing Commercial Lease Terms Against Successor Landlords: Part 1” 2000(49) Prop LB 4–6.

The effect of the “offside goals rule”14

This was an issue raised in Advice Centre for Mortgages per Lord Drummond Young at [41] – [52]. See also A J M Steven, “Options to purchase and successor landlords” (2006) EdinLR 432 at 435–437.

 is believed to be a conceptually distinct issue,15

See Webster, Tenant and Successor Landlord ch 9.

 and so is discussed only tangentially. The article begins (in part B) by discussing the historical development of the rules on transmissibility, seeking to advance the view that transmissibility is fundamentally a qualitative question, and continues (in part C) by considering the development of the inter naturalia test and challenging the modern consensus as to its precise nature and utility. Part D considers the importance of empirical evidence in the question of transmissibility, and in particular identifies a “contractual” question of transmissibility, operating alongside the property-law-based test discussed above, in which a multitude of factors, including the empirical “commonness” of a term, may be relevant. Conclusions are drawn in part E THE HISTORICAL DEVELOPMENT OF THE RULES ON TRANSMISSIBILITY Early case law: the “lease-as-security” cases

Given the uncertainty in this area, it is perhaps surprising that the courts have dealt with questions of transmissibility for centuries. The earliest cases deal predominantly with situations in which leases were used as security for debts. For example, T lends money to L. In return, L grants T a lease which, while containing a rent, allows that rent to be retained, either for extinction of the principal sum, for the interest accruing on that sum, or both. The lease continues until the debt is repaid. While such devices were useful in avoiding the restrictions on interest-bearing personal obligations under pre-Reformation canon law,16

Bell, Comm I.69; K G C Reid et al, The Law of Property in Scotland (1996) para 112. Such prohibitions on interest-taking were largely abolished under the Usury Acts of 1587, 1594 and 1597.

they remained prevalent thereafter as quasi-security devices.17

Some of the earliest reported examples of this are Rollock (1614) Mor 15234 and an unnamed case from March 1612 (2 Kames 423).

An understanding of the development of the courts’ approach to such devices offers interesting insights into the origins of a wider rule on transmissibility

Despite a generally liberal attitude to application of the 1449 Act amongst the judiciary,18

W Ross, Lectures on the practice of the law of Scotland vol II (1792) 475–478; Stair, Inst 2.9.2; Bankton, Inst II.ix.1.

even the earliest case law indicates that certain rights and obligations in “lease-as-security” cases ought not to affect a successor landlord. Initially, this was rationalised on the basis of the requirement that, to qualify as a real right under the Act, a lease must bear the four “cardinal elements” of a lease.19

I.e. the parties, the subjects, a specific rent and a definite ish: Bell, Prin §1190.

 Where certain terms removed these elements, then those terms would fail to qualify under the Act and thus be intransmissible.20

For example, Muckal v Tenants (1621) Mor 15234; Mitchelson v Law (1624) Mor 15235; Bennett v Turnbull (1628) Mor 15237.

The two elements of relevance in this regard were the requirements of rent and a definite ish. As regards the latter, while in some early cases the approach of the courts was fairly lenient, so that leases terminating on repayment of the extrinsic debt were deemed to contain a definite ish,21

Ronald v Strang (1625) Mor 15236, 2 Kames 422; See also Cockburn v Sampson (1698) Mor 15247, in which it was suggested that, as the rent was to be applied in reduction of the debt owed by the landlord to the tenant, the ish could be calculated at the date when the surplus rent would wipe out the capital. This was expressly overruled in Auchinbreck v Maclaughlin (1748) Mor 15248 (on which, see below). For an overview, see R Hunter, Treatise on the law of landlord and tenant, 4th edn, ed W Guthrie (1876) I.464.

subsequent cases evidence a more robust approach under which, in the absence of a specifically defined ish, the lease would be ineffective against singular...

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