The Land and Buildings Transaction Tax (Scotland) Act was passed on 25 June and received royal assent on 1 August 2013. Some points of note:

• The new tax will to come into effect in April 2015 (when SDLT ceases to apply in Scotland);
• the Act is the first of three- a Landfill Tax Act and Tax Management Act will follow;
• the Scottish Ministers are the tax authority (s54) but the authority can be changed by order (a new body, Revenue Scotland has been established for that purpose);
• the tax authority can delegate administration and collection of the tax to Registers of Scotland (s55) (an idea first suggested by my colleague James Aitken);
• the tax will be progressive, i.e. tax is charged on the proportion of the price exceeding the threshold (like income tax) rather than charging the higher rate of tax on the whole price (per SDLT)(ss24-26)
• like SDLT, LBTT will be charged on VAT (para 2, Schedule 2)
• the Act contains a number of targeted anti-avoidance rules applying to specific exemptions and reliefs. The Scottish Government has consulted on the introduction of a general anti-avoidance rule (“GAAR”) and it is likely that a GAAR will be included in the Tax Management Act;
• LBTT on commercial leases will (like SDLT) be based on net present value of the rent payable (s52 and Schedule 19) but the Act also makes provision for a return to be made every three years (and for additional payments or refunds) throughout the whole term of the lease so that the tax will reflect the actual rent paid;
• residential leases are exempt (s16 and para 3, Schedule 1);
• licences to occupy are exempt (s16 and para 3, Schedule 1) but “prescribed non-residential licences” which are to be prescribed in future regulations will be taxed; and
• the Act replicates existing SDLT provisions on partnerships (s49 and Schedule 17) & trusts (s50 and Schedule 18). However, the Scottish Government may make changes to these provisions (in the interests of greater clarity) before LBTT comes into effect.
• The rates and bands can be seen here.

The full Act is available here.

Outer House case relating to a development at Rubislaw Quarry in Aberdeen. The developers sought the co-operation of those with interests (proprietors/tenants) in nearby office blocks (who were concerned that the new development would have a detrimental effect on the value of their properties) with respect to[1] access to the development site. An agreement was entered into between the developers and the proprietors/tenants which included a restriction on the office space available for rent within the new development in the following terms:

“The northern quarry proprietors undertake (to the relevant parties) that the maximum net lettable floor area of Office Space which may be provided within the northern quarry subjects at any given time shall not exceed 2,025.29 sq. m. (in total)”.

The court action involved successors to the original parties to the agreement. The developers sought declarator that the clause:

1. allowed the amount of office space in the development to exceed 2,025.29 sq. m but restricted the space actually available for let to 2,025.29 sq. m (i.e. they argued the figure did not include owner occupied or vacant office space); and
2. was not a real burden and, as such, bound only the original parties to the agreement and not their successors.

 Lord Malcolm rejected both of those arguments.

Meaning of the clause
After considering the whole terms of the contract “in the light of the general setting and purpose of the agreement”, Lord Malcolm found that the overall intention was to provide for a maximum floor area which was capable of being let for office use. In coming to this conclusion, account was taken of the preamble to the agreement, which required the developer “to accept certain restrictions with regard to office space within any development of the northern quarry subjects…”, and a further clause containing a requirement that developers exhibit floor plans and internal layout, which would have been irrelevant had the only restriction been on letting floor of space with no limit on the amount constructed.

Whether binding on successors
Whether the burden was real (i.e. binding on successors) depended on whether the restriction on office space was:

1. purely a trading condition, designed solely to protect the personal commercial interests of those  interested in the offices; or
2. whether it, in addition to any personal benefit, also conveyed a material benefit on the properties themselves.

The proximity of the development to the offices was an important consideration. The existing office blocks and the new development site presented a “distinct neighbourhood”. The proprietors/tenants were seeking protection against reductions in rental values arising from the introduction of additional competition within that neighbourhood. The restriction therefore benefited the offices as commercial properties by protecting their rental value. Also of relevance in coming to the judge’s conclusion that the burden was binding on successors, was the fact that the offices were specifically adapted for office use meaning future owners would be likely to use them for the same purpose and, consequently, the burden on the new development would be reflected in the value of the existing properties.

Title and Interest of the developers
Lord Malcolm also rejected an argument made on behalf of the proprietors/tenants to the effect that the developers did not have title and interest to bring the action as, although they had entered missives for the purchase of the site, they had not yet recorded title to it. The court would refuse to entertain declarators concerning purely academic, speculative or hypothetical issues, or where the pursuer has no practical interest in the outcome. However, in this case the developers had a good reason for discovering the correct legal position at the time they raised the action: they had entered into missives (with a view to developing the site) with the current owners who, as a result, had no interest in the matter.

The full judgement is available from Scottish Courts here.

(See appeal to the Inner House here.)

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Outer House case in which HFD sought to challenge Aberdeen City Council’s decision to appoint Muse Development Limited as preferred bidders for the development of a site (the former Council headquarters) at Broad Street in Aberdeen.

HFD argued that:

1. there had been various quantitative errors in the scoring matrix used to assess the bids;
2. what had been advertised had been a sale of the site but the successful bid was made on the basis of a sale and leaseback; and
3. a revised version of the HFD bid (based on a sale and leaseback) submitted after the closing date should, if the Council considered themselves precluded from accepting it, have given rise to recommencement of the bidding procedure.

Lord Brailsford refused HFD’s petition.

Errors in the scoring matrix
The alleged errors in the scoring matrix were not sufficient to impugn the bidding process and did not affect the overall ranking of the bids.

Sale and leaseback
The language used in guidance documents (issued for potential bidders by the Council), which indicated that the Council would accept joint venture and partnership agreements, made it “tolerably clear” (having regard to the importance/value of the subjects and the fact that the bidders were commercial bodies with expertise in the property market and with access to skilled professional advice) that the Council were actively seeking and encouraging innovative proposals for what was a major commercial development. As such, the language of the documents was sufficiently wide to encompass a sale and leaseback arrangement.

Submission after the closing date
Lord Brailsford agreed with reasoning in a prior case[1] to the effect that, although a seller can accept higher bids after a closing date, the practice is not well regarded and would involve the seller departing from the competitive tendering process which may be seen as an act of bad faith by the bidders. It would put into question the reliability of any future tendering process and, if it were to be routinely sanctioned by the courts,  the degree of certainty which a bidding process is designed to achieve would be lost. That reasoning also applied to HFD’s suggestion that the bidding process should have been started afresh after receipt of the Muse’s offer.

The full judgement is available from Scottish Courts here.

Inner House case considering an appeal from the Outer House in which a residents group challenged decisions made by East Renfrewshire Council (1) to grant planning permission and (2) to confirm fulfilment of a planning condition relating to drainage, in respect of a proposed development at Ayr Road in Newton Mearns.

The residents group had applied for a protective costs order (which puts a cap on a party’s liability for the expenses of the court action.) Protective costs orders can be granted where the issues raised are of general public importance and where the applicant has no private interest in the outcome of the case. However, in the Outer House, Lord Tyre refused the application on the basis that the issue was one of local community interest rather than general public importance.

The Inner House refused the appeal. After noting that the residents group could fairly be characterised as an association of local residents whose primary objective was the safeguarding of their respective private interests, the court came to the conclusion that the issue was not one of general public importance:

“What is challenged, in the sense of being sought to be reduced, is a planning permission for a relatively modest development. Any increased risk of flooding is of importance to all the individuals who fear that their properties may be affected. In a sense it is true to say… that flooding is a matter of public concern and that in the event of an incident of flooding public services are engaged. None of that makes what is in issue here a matter of general public importance. The interests involved are predominantly local and predominantly private. There may be applications for judicial review where the issues raised are at once local and yet of general public interest. This is not such an application.”

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

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Outer House case in which the liquidators of Scottish Coal sought directions from the court in respect of several disused open cast mining sites owned by Scottish Coal.

The sites were subject to onerous statutory obligations aimed at controlling land use, protecting the environment, habitats and birds and ensuring public safety. The sites were also subject to obligations under planning legislation requiring restoration of the sites, the cost of which was estimated at £73m.

The liquidators sought directions as to whether they could abandon or disclaim:

1. the sites, thereby transferring ownership to the Crown; and
2. the statutory licences/permits authorising Scottish Coal to carry out its industrial activities (and imposing the obligations on Scottish Coal).

The Scottish Environment Protection Agency (SEPA) and Scottish Natural Heritage (SNH) were represented in court and argued that it is not possible for liquidator to do so as, under Scots law:

a)    there is no power to abandon the ownership of land; and
b)    ownerless land is an impossibility.

No authority could be found supporting the idea that an owner could abandon land in Scotland. However, after considering Roman Dutch law[1] and the German Civil Code[2], Lord Hodge found[3] that it may be possible for an owner to abandon land[4] and circumstances may arise when, on a disclaimer by the Crown, land becomes ownerless.

But, whilst the liquidators generally have power to disclaim property, where the company’s use of the land is governed by statutory permits, his ability to disclaim would depend upon the terms of the statutory provisions and the permits.

In this case the decision depended on whether the court took a wide interpretation (as argued for by SEPA and SNH) or a narrow interpretation (as argued for by the liquidators) of the relevant legislation[5]. Lord Hodge came to the conclusion that the Scotland Act 1998[6] required him to take a narrow interpretation leading to the conclusion that the liquidators could disclaim the sites and release themselves from the obligations.

The full judgement is available from Scottish Courts here.

(NB: see Inner House decision here)

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Inner House case in which the Cairngorms Campaign and others applied to the court for reduction of a decision by the Cairngorm National Park Authority to adopt the Cairngorm’s National Park Local Plan. In particular they complained about the adoption of development policies in the Local Plan which made provision for developments at Nethy Bridge (40 dwelling houses and business units),  Carrbridge (up to 117 dwelling houses), An Camas Mòr  (1,500 dwelling houses) and Kingussie (300 dwelling houses).

In the Outer House Lord Glennie rejected the campaigner’s arguments finding that, in adopting the Local Plan, the Park Authority had neither acted unlawfully or illegally (in the Wednesbury sense – i.e. it had not reached a decision that no reasonable person in that position properly informed of the facts could have reached) nor had it failed to give adequate reasons for its decision, the reasons given for the decision being clear. In coming to his decision, Lord Glennie also rejected a number of more specific arguments made by the campaigners.

The campaigners argued that Lord Glennie had erred in law by failing to appreciate what was necessary in terms of the  “appropriate assessment” required  under  the Conservation (Natural Habitats etc) Regulations 1994 (implementing Habitats Directive 92/43/EEC) when assessing the implications of the Local Plan on the Park’s conservation objectives. They contended that a far more detailed assessment should have been made at the point the Local Plan was approved.

This argument was rejected by the Inner House which agreed with the decision of Lord Glennie. Although referred to as an appeal, it was appropriate to consider the campaigners’ action on judicial review grounds. Taking that approach, the Park Authority’s appropriate assessment could not be said to be one which no reasonable authority would have produced in the circumstances. It was, therefore, open to the Authority to adopt a Local Plan which relied on that assessment.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Outer House case concerning a Property Enquiry Certificate obtained by Manorgate from First Scottish which failed to reveal that the site for which the certificate was obtained was designated as being one of archaeological significance. It intended to demolish the existing buildings and erect new commercial premises. One of the new units was to be used as a retail branch for its flooring business. The other units were to be let to complementary traders. However, following purchase of the site, the designation led to Manorgate mothballing it after concluding that the intended development was uneconomic. Manorgate then sued First Scottish for damages in respect of (a) the lost capital value of the Site (b) site investigation costs; (c) trading losses; and (d) development losses.

First Scottish accepted that the Certificate should have referred to the archaeological designation and that they had been negligent in omitting it. However, amongst other things, they argued that (1) the omission had not caused Manorgate’s losses (2) that there had been contributory negligence on Manorgate’s part and (3) Manorgate’s losses were too remote to have been foreseeable by First Scottish.

Lord Woolman rejected the First Scottish defences and awarded damages (albeit the damages were reduced as some of the losses were not foreseeable).

Causation
Lord Woolman found that Manorgate had relied on the certificate and would have withdrawn from the missives for the purchase of the site if the certificate had been accurate.

Contributory negligence
First Scottish argued that Manorgate should have queried or double-checked the accuracy of the information in the certificate. Lord Woolman found that a surprising position for it to adopt noting that, if purchasers were obliged to carry out their own separate investigations, it would deprive Property Enquiry Certificate of any real utility.

Foreseeability
Whilst the diminution in value of the site, site investigation costs and loss of business profits (First Scottish knew the site was zoned for commercial use) were foreseeable, First Scottish could not have reasonably foreseen a sequence of events that led to the buildings being demolished. Nor could they have foreseen that the purchaser of the site would both seek to carry on business there and also sell the site and generate development profit and, as a result, no damages were awarded for development profit.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Outer House case in which Mrs Hoblyn sought reduction of a decree authorising the bank to take possession of a house occupied by her, suspension (and interim suspension) of a notice of ejection against her and interdict (and interim interdict) preventing the bank from selling the house. The Court initially granted orders temporarily suspending the eviction and preventing the sale of the house. However, the bank sought recall of those orders.

The house had formerly been the matrimonial home shared by Mrs Hoblyn, her former husband and their children but it was owned solely by Mr Holbyn. Mr Holbyn had not lived in the house since the couple separated in 1994 and he was later sequestrated. The bank, which held a standard security over the house, had taken action to repossess and sell the house after the related loan account fell into arrears.

Mrs Holbyn’s ground of challenge appeared to be that the correct statutory procedure had not been followed. She gave evidence of the actings of her former husband who she said (unbeknown to her) had acted in bad faith in his financial dealings and also challenged the good faith of his sequestration, arguing that he had arranged his own sequestration to avoid debts he had incurred.

Although Lord Drummond Young sympathised with Mrs Holbyn’s predicament and accepted that she was likely to suffer hardship, he found that she had failed to make anything approaching a prima face case. It had been clear that the bank had done everything required of it by way of service on Mrs Holbyn and procedure under the legislation. The problem was that the house was subject to a standard security in respect of a loan to Mr Holbyn and that loan payments had not been made. In those circumstances the bank was entitled to enforce the security, if necessary by repossessing the house and selling it. The fundamental objectives of the law of heritable security would be frustrated if that course were not available. Consequently, Lord Drummond Young recalled the interim suspension and interdict the court had previously granted.

The full judgement is available from Scottish Courts here.

Mrs Holbyn sought and was refused an interim interdict preventing the eviction and an appeal against that decision was also refused in the Inner House ([2014] CSIH 52).

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Inner House case relating to the compulsory purchase of land required for the Borders Railway. At the centre of the case were certificates of appropriate alternative development issued to developers with an interest in the land (in terms of s25 of the Land Compensation (Scotland) Act 1963). Section 25 certificates specify the classes of development for which the land would be suitable if the compulsory purchase does not go ahead. In this case the certificates stated that planning permission would have been granted for various residential and business developments if the compulsory purchase did not go ahead. Network rail argued that the certificates should have stated that planning permission would only have been granted for the development for which the land was to be compulsorily acquired (i.e. the Borders Railway) which would have reduced the compensation payable to the developers and  appealed to the Scottish Ministers on that basis. However, when they failed to comply with the Ministers’ Reporters’ request for documentation (the certificates and applications) within the time limit, the Reporter concluded that Network Rail’s appeal was deemed to have been withdrawn. Network Rail then made a further appeal to the court.

On a construction of the Reporter’s correspondence with Network Rail, it was found that the documents had been requested and time limits imposed (there was argument to the effect that the Reporter had indefinitely suspended the time limits) in line with the legislation.

In terms of the relevant legislation (the Land Compensation (Scotland) Development Order 1975), the applicant required to “furnish” the reporter with the documents within the time limit. Network Rail contended that, although the documents had not been sent to the Reporter, they had been available on the planning authority’s website and should be treated as being “furnished” in terms of the legislation. However that contention was rejected by the court:

“The court is not satisfied that the placing of material on a website, without something more, is sufficient to amount to the “furnishing” of that material to another for the purposes of statutory interpretation. There may be circumstances in which such information may be furnished by, say, providing a hyperlink to a website, where it has been made available, or uploading the information to a particular website at the request of the intended recipient. Where a party does nothing, however, there is no act which might be construed as “furnishing” the information to anyone. The [Reporter] cannot be expected to seek out the information required … on the basis that it may or may not be in the public domain.”

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.