Inner House case (for appeal to Supreme Court, see here) concerning agreements between RBS and a property developer. In July 2007 the bank and the developer entered written agreements for loans of £845k and £560k in respect of the purchase of  two plots of land at Gleneagles on which the developer was to build two houses.

The repayment date for the loans was in August 2008 and, when the developer failed to repay the loans at that date, the bank sued the developer for recovery of the funds. However, the developer counter claimed arguing that he had only entered into the loan agreements on the basis of assurances given by the Bank that it would make additional funding (of up to £700k) available to fund development on the plot and claimed damages in respect of the bank’s breach of those assurances. The assurances said to have been given by the bank included a telephone call prior to the signing of the agreements in which the developer was told that, in addition to the sums lent to buy the land, the bank would advance further “funding for the development”.

In the Outer House Lord Glennie found that bank had agreed a “collateral warranty” obliging them to lend for the development of the plots. However, the Inner House allowed an appeal finding that the telephone call only amounted to a statement of future intention and that legal obligations would only arise when the parties entered a written contract.

“If the [developer] considered that the [written agreements] did not properly reflect what he understood was to be agreed, or had been agreed orally, then he ought not to have signed the agreements. At all events, whatever the [developer] thought was the position, the informed observer would understand the written agreements to cover all matters agreed to date. It may well be that, at that time, the [bank] fully intended to enter into a further bargain with the [developer] to advance additional funding for the building works. However, they had not done so and did not do so. That may have been contrary to the spirit of the negotiations prior to the signing of the written agreements, but that spirit, or its moral content, cannot be taken as creating a legally binding voluntary obligation.”

The full judgement is available from Scottish Courts here.

(NB: See Supreme Court decision here.)

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

Sheriff Court case in which the tenants under a short assured tenancy of property at Cumberland Street in Edinburgh sought to enforce the terms of the Tenancy Deposit Schemes (Scotland) Regulations 2011 against their landlord (an experienced property agent).

The landlord terminated the lease (on 12^th January 2013) and retained the tenants’ deposit of £1150. When the tenants contacted the landlord to recover the deposit (on 17^th February 2013), the landlord  claimed that he was entitled to retain the deposit due to damage caused to the premises by the tenants (but failed to produce any evidence). After lengthy correspondence between the parties the landlord repaid half the deposit to the tenants.

The 2011 Regulations obliged landlords to pay deposits to the scheme administrator of an approved tenancy deposit scheme by 24th November 2012 and also provides a free dispute resolution scheme in relation to the return of the deposits. If a landlord fails to comply with his obligations under the regulations, he is obliged to pay an amount not exceeding three times the amount of the deposit to the tenant.

The landlord admitted that it had failed to comply with his obligations under the regulations but argued that, following the correspondence, the parties had settled the matter and that, as the most the tenants would have been entitled to in terms of any arbitration under the statutory dispute resolution scheme was £1150, payment of three times the deposit was excessive.

The sheriff ordered that an amount of £3450 be paid to the tenants. The amount to be paid was not compensatory; it was a sanction or a penalty analogous to an award of punitive or exemplary damages[1]. In exercising the courts “unfettered discretion” when assessing the amount to be paid, the sheriff took account of the following:

“In this case the landlord was someone who may be presumed to have special knowledge of his obligations both in terms of the 2011 Regulations and the 2004 Act[2]. He failed to comply. It is averred that it was due to “oversight”. No further information was provided by [the landlord's solicitor]. In my opinion no proper explanation for his failure has been provided. He claimed retention of the pursuers’ deposit but failed to produce any evidence to support his claims. Had the dispute resolution procedure been available he would have been unable to seek retention of any part of the deposit without producing relevant evidence. The pursuers were placed in an invidious position and a compromise was reached on economic grounds. The fact that offers to settle this action have been made is in my opinion irrelevant to the issue to be determined.”

Sheriff Court case concerning an application by Edinburgh Woollen Mill to renew its lease of premises on the Lawnmarket in Edinburgh under the Tenancy of Shops (Scotland) Act 1949. Their landlords (trustees for the firm of Gold Brothers) were trading competitors and had served a notice to quit on the Woollen Mill requiring them to leave the premises at the end of the lease.

The 1949 Act allows a sheriff to determine that a tenancy be renewed for a period of up to a year at a rent, and on terms and conditions, that the sheriff thinks are reasonable. The purpose of the Act was to prevent small shopkeepers being evicted by speculators who purchased properties and gave the shopkeepers the option of either buying at an exorbitant price or being evicted.

After noting that the mischief which the Act was designed to address is no longer self-evident today and was not apparent in the circumstances surrounding the lease in question, the Sheriff refused the Woollen Mill’s application:

“[The 1949 Act] empowers, and requires, the court to act to avoid injustice, in the historic context of widespread economic oppression of small-scale shop traders. The types of protection envisaged includes allowing the trader time to relocate to another property, to preserve his business and goodwill, or to avoid the trader being forced out of business altogether through removal of premises from which to trade.

Turning to the present case, it is at once apparent that no such considerations exist. The parties have both known, since the defenders acquired the landlord’s interest approximately six years ago, that the lease would not be renewed consensually. That has left the pursuer plenty of time to anticipate and prepare for the trading realities that this would bring. The pursuer’s business will be somewhat diminished by ceasing trade from the premises, but otherwise continues uninterrupted, from its 300 other outlets. There is no threat to its goodwill or good name, as it can adapt other stores to carry their name, if they wish. The present dispute represents no more than an attempt to retain a highly successful site, and to keep it from a direct competitor. Such an attempt is understandable… ….It is, however, only an economic blow. It is not an injustice, and there is nothing unreasonable in requiring the pursuer to remove at the end of the lease.”

 The full judgment is available from Scottish courts here.

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

Issue
Outer House case in which property developers sought to appeal a decision of a reporter appointed by the Scottish Ministers. The reporter had refused an appeal by the developer of Perth & Kinross Council’s decision to reject a planning application for a mixed use development (initially including 1800 and latterly 1500 houses) adjacent to Huntingtower and Ruthvenfield in Perthshire.

The developers’ challenge was based on grounds of irrationality in various forms but also raised the issue of the significance to be attached to an emerging local plan as a material consideration when making planning decisions.

Background
The Perth area local plan (adopted in March 1996) included the developers’ site as a long-term development site. However, the Council refused permission for the development on 4 January 2012 on the basis that it did not comply fully with the development plan. On 10 January a decision was made to amend a new and emerging development plan (not yet adopted) so as to remove the developer’s site from the proposed housing allocation. As a result, the emerging local plan, which was published in January 2012, did not include the developers’ site within the housing allocation.

On 12 September 2012 the Scottish Minister’s reporter refused the developer’s appeal of the Council’s refusal of planning permission. The reporter found that the emerging local development plan was a material consideration and the conflict between it and the developer’s application was sufficient to justify refusing the permission (and thus departing from the adopted existing local plan).  The developer argued (amongst other things) that the reporter had been wrong to do so and also that the decision to remove the developers’ site from the housing allocation in the emerging plan (on 10 January 2013) was simply a consequence of the Council’s rejection of the developers’ planning application (on 4 January).

Decision
Lord Glennie refused the appeal. The reporter had been entitled to consider whether the emerging local development plan was a material consideration. The developer’s site was of a scale and importance such as to make it of major significance in the development of West/North West Perth. That being so, the fact of the emergence of the local development plan was a material consideration. In such circumstances, while recognising the statutory priority given to the plan-led planning process (i.e. the existing development plan), it was legitimate, when assessing the weight to be afforded to that consideration, to take into account the benefits to the public interest of the wider planning framework of the statutory local development plan process. The reporter found these factors to be of sufficient weight to outweigh the provisions of the existing development plan and her decision had made it clear that she had approached the issue in that way.

Lord Glennie also noted that the reasons for removing the developers’ site from the emerging local development plan (other than the simple refusal of the developer’s application on 4 January) had been before the reporter and that her reference to them had made it clear she had taken account of them.

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 planning application made by Archid in October 2009 to convert an office on Thomson Street in Dundee into a residential building.

Background
Archid received a notice dated 1 December 2009 advising that Dundee City Council had granted planning permission for their development on 26 November 2009. The notice also contained the reasons for the decision and, although the notice purported to grant the permission, the reasons appeared to be justifications for a refusal of permission. Archid then applied for and were granted (on 18 March 2010) a building warrant in connection with the works.

However, on 11 May 2011, Archid received a second notice (also dated 1 December 2009) from the Council advising that planning permission for the works had in fact been refused on 26 November 2009 and that an incorrect decision notice had been issued[1]. The covering letter also stated that the Council’s Enforcement Officer had visited the site, asked that all works cease and that the site be restored to its original condition.

Arguments
Archid sought judicial review. They argued that, having issued their original decision notice, the Council could not thereafter just ignore it and issue a new decision letter refusing the permission. Until the planning permission was revoked or modified in accordance with the statutory procedure[2] (which provides protection for the applicant in respect of work already carried out and provides a separate review process[3]) or reduced by an order of the court, the permission stood.

The Council argued that the person within the planning department who sent out the first notice had had no authority to do so. His authority extended only to giving notice of decisions taken to grant or refuse planning permission. The decision taken by the Council was to refuse permission. In those circumstances he had no authority to give notice that permission had been granted. It followed, they contended, that the first notice was simply a nullity and could be ignored.

Decision
Lord Glennie took the view that the presumption expressed by the maxim omnia praesumuntur rite esse acta (“all things are presumed to have been done duly and in the usual manner”) was applicable with the consequence that the first notice was presumed to be validly made and to have legal effect unless and until reduced following a court process.

 “An interested member of the public should be able to rely upon a notice issued by a public authority as having been issued correctly and with the appropriate authority; that is all the more pertinent in the case of a document granting planning permission, since the grant of planning permission runs with the land, and may be relied on by persons who were not party to the original application or privy to any correspondence or telephone communications passing between the applicant and the authority.”

The validity of the second notice depended on the status of the first notice (at the time the second was issued). The first notice being valid, the Council could not[4] then correct it as the Council was functus (i.e. having discharged its duty, the Council could not then review its own decision.).  Also it could not simply ignore it and make another order, because then there would be two conflicting orders in respect of the one matter. Lord Glennie therefore concluded that the first notice was valid and that the second notice was ultra vires (i.e. outwith the Council’s powers) and had to be reduced.[5]

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 Mr and Mrs Motion sought interdict to prevent their neighbours, Mr and Mrs Binnie from encroaching on, or interfering with their property (consisting of two cottages, a paddock and a strip of land) and from interfering with or obstructing servitude rights of access (over farm roads) to that property. The Motions’ titles to the property and servitude rights were registered (and defined on plans) in the Land Register without exclusion of indemnity.

In their defence, the Binnies argued that the Motions did not have a vehicular right of access over part of the access route, contending that to exercise a vehicular right would involve them driving over part of the Binnies’ property. This, they argued, was not a challenge to the Motions’ title but a challenge to the physical extent of the servitude rights.

However, in the view of Lord Bannatyne, it was impossible to read the Binnies’ arguments as anything other than a challenge to the Motions’ title. The Motions’ rights were set out clearly on plans and registered in the land register but the Binnies did not seek to rectify the register. As such, the Binnies’ defences were found to be irrelevant. In coming to his conclusion Lord Bannatyne quoted from the Scottish Law Commission’s Report on Land Registration (SLC Report No. 222) which states:

“Rights in land are what the Register says they are and the Register says what the Keeper decides it should say. The Keeper giveth and the Keeper taketh away.”; and

“Everything that the Keeper touches turns to valid.”

 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.

The prices of all of our property styles have been reduced by 50% for the month of August. You can see our range of styles here.

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.