From Tenant to Owner: the effects of the Long Leases (Scotland) Act 2012

On 28 November 2015 tenants under qualifying long leases become the outright owner of the leased property as the key provisions of the Long Leases (Scotland) Act 2012 come into force. A qualifying lease must:

• Be registered in the Land Register of Scotland or Register of Sasines;
• Have an original term of over 175 years and in relation to a private dwelling house have at least 100 years to run and for all other properties at least 175 years left to run; and
• Have an annual rent of £100 or less.

There are some limited circumstances where a lease is not treated as a qualifying lease even though it meets the above criteria:

• The subjects of the lease include a harbour in relation to which there is a harbour authority;
• The lease was granted for the sole purpose of the tenant installing or maintaining pipes or cables; or
• It is a lease of minerals or includes minerals in respect of which a royalty, lordship or other payment of rent linked to the exploitation of those minerals is payable.

Tenants had the opportunity to opt out but the time limit for this has now expired. Landlords also had the opportunity in certain cases to agree with a tenant that the lease would not convert, or obtain a Lands Tribunal ruling to that effect, but again the time limit for this has now expired.

On conversion the landlord’s interest disappears as do any securities over it, and compensation may be payable to the landlord. The level of any compensation is likely to be relatively low level given it is based on a capitalised value of the annual rent, which is of course restricted to £100 for qualifying leases. Any security over a qualifying lease that converts remains in place.

Only the lowest qualifying lease converts. This means that where there is a head-lease and a sub-lease, and both the head-lease and sub-lease are qualifying leases, only the sub-lease converts with the head-tenant and head-landlord’s interest disappearing.

Any title conditions or other encumbrances which burden the owner’s title remain in place, as do any pertinents benefitting the land. Any access or other similar rights which benefit the lease, and which would have been servitudes had the original lease been a disposition, are converted into servitudes benefitting the land. Information on the conversion of lease conditions to title conditions can be found here.

It is worth noting that Registers of Scotland (who maintain the Scottish property registers) will not automatically update any affected titles in the property registers. So if you think your organisation has a property which this legislation affects, you may want to consider making an application to Registers of Scotland to update the title just now (rather than waiting until a transaction involving the property is about to happen). CMS are of course happy to assist you in making an application; we are submitting our first application for an affected title on 28 November 2015, so we are already well-versed in the procedures involved.

For more information, please contact Roland Smyth (0131 200 7546) or Paul Carter (0141 304 6115).