ELB Securities Ltd v. Alan Love & Prestwick Hotels Ltd, 26 August 2014 – effect of dissolution of tenant on lease of premises

Sheriff court case relating to a lease of premises on Buchanan Street in Glasgow. ELB were the Landlords and Prestwick Hotels Ltd, the tenants.

Prestwick were dissolved in June 2013 and then restored to the register of companies in October 2013. In terms of the Companies Act 2006[1] when a company is dissolved its property (including leasehold property) falls to the Crown as bona vacantia and the Crown must then decide whether or not to disclaim the property. In this case the Crown opted to disclaim the property which (in terms of s1020 of the 2006 Act) had the effect of terminating the lease.  ELB therefore sought to recover possession of the subjects from Prestwick.

The crux of the case was the meaning of s1032(1) of the Companies Act 2006 which provides:

 “The general effect of an order by the court for restoration to the register is that the company is deemed to have continued in existence as if it had not been dissolved or struck off the register.”

Prestwick argued that the effect of this section was that when it had been restored to the register all matters reverted to the pre-dissolution status quo to the extent that bona vacantia no longer applied to the premises. As such the lease continued and there was no foundation for ELB’s action to recover possession of the premises. The sheriff agreed with those arguments and dismissed ELB’s action.

However, on appeal, the sheriff principal recalled the sheriff’s decision and found that ELB were entitled to recover possession of the premises. In coming to this conclusion the sheriff principal took account of the uncertainty which would result if the restoration of the company were also to restore the lease. In terms of s1030(4) of the 2006 Act a company can be restored to the register up to 6 years after it has been dissolved. Thus if, for example, a landlord recovered possession of the premises following a dissolution and let it to another tenant, following Prestwick’s reasoning, the new tenant would cease to have any rights to the premises, if (at any point during the 6 year period) the original tenant were restored to the register.

As such, the sheriff principal found that Parliament did not intend that 1032(1) should operate so as to re-write history in an unrestrained manner and that the specific provisions contained in s1020 relating to the termination of the lease should prevail over the general effect of s1032.

With regard to the effect on Prestwick the sheriff principal said the following:

“My decision might be seen as somewhat harsh in so far as [Prestwick] are concerned.  However, I would reject any such criticism.  Firstly, in general terms, the construction placed upon the provisions of the 2006 Act simply serves to highlight the importance to be attached to proper compliance with features such as the regular and timeous lodging of company accounts etc.  Dissolution of a company is rightly associated with very significant consequences not only for the company itself but also for other parties with whom they have contracted.”

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.

[1] Section 1012

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Petition of East Renfrewshire Council for an order under section 75(2) of the Local Government (Scotland) Act 1973, 19 August 2014 – whether court has discretion to allow building on common good land

Outer House case in which East Renfrewshire Council sought an order under s75(2) of the Local Government (Scotland) Act 1973. The Council wanted to build a new school (on what it accepted was inalienable common good land) at Cowan Park in Barrhead.

S75(2) allows the Court to authorise a disposal of common good land on such conditions as it may decide to impose. However, the common law prohibition on appropriation of inalienable common good land remains intact meaning that the court has no discretion to allow a sale[1].

The Council’s plan was to finance the construction using a public/private partnership. The site would be leased by the Council to a company which would in turn grant a sublease to the Council. The Company would then grant a security to a private sector funder. The Council argued that this amounted to a disposal of the land meaning the court had discretion to allow it.

However, Lord Tyre found that the Council’s proposals could not be described as anything other than an appropriation. As such, the court had no power to authorise it.

In coming to this conclusion Lord Tyre took account of the following factors.

  1. The Council were, at the time of the decision, the proprietors of the site and would remain so during the construction phase, throughout the duration of the lease and sub-lease, and permanently after the termination of the lease and sub-lease.
  2. The Council were also, at the time of the decision, in possession of the site.  Because the lease and sub-lease had the same duration, they would remain in possession of it during the construction phase, throughout the duration of the lease and sub-lease, and permanently after the termination of the lease and sub-lease.  Their occupation would, be subject to the contractual rights of possession, including some exclusive possession during the construction phase, to be granted to the company but those rights were expressly declared not to constitute a lease.
  3. The site would cease to be used by the Council for the purposes of the common good with effect from the commencement of the construction phase.
  4. The company’s creditor would have the rights conferred upon it by the terms of whatever security was granted by the company in its favour.  It was reasonable to assume that either:
    • the creditor, at the time when the security came to be taken, would be aware that a sub-lease in favour of Council had been granted; or
    • if the sub-lease had not yet been granted, the Council would insist upon the creditor consenting to it.

As such, the creditor’s remedies would not include a right to enter into possession[2].

Lord Tyre therefore found it difficult to envisage circumstances in which the Council could ever be deprived of possession of the site.

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.


[1] See Portobello Park Action Group Association v City of Edinburgh Council, 2013 SC 184

[2] As the “offside goals rule” would apply with the effect that the Banks prior knowledge of the lease would put it in bad faith and prevent it enforcing the security against the Council  (See, for example, Trade Development Bank v Crittall Windows Ltd , 1983 SLT 510.)

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Latest edition of HMRC’s Trusts and Estates newsletter

HMRC’s August 2014 edition of the Trusts & Estates newsletter for trusts and estates practitioners is now available online and can be found here.

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Private Client quarterly bulletin launching in January 2015

If you are interested in subscribing to a quarterly Private Client Bulletin please email me at: james@legalknowledgescotland.com

The Bulletin will review the latest cases, consultations, legislation, official publications and news items.

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Scottish Law Commission calls for major reform of the law of trusts

The Scottish Law Commission has published a major report recommending substantial reform of the law of trusts in Scotland.

This is from the Scottish Law Commission.

“We publish today our Report on Trust Law.  Despite the prominence of trusts in Scots law, the institution is badly served by existing legislation.  The main statute, the Trusts (Scotland) Act 1921, is almost a century old: its structure and language have become antiquated, and the uses to which trusts are put have evolved over that time.  The Act has been heavily amended over the years, leading to a lack of clarity and practical difficulties for trustees and beneficiaries.  The recommendations in our Report will affect all those who use trusts and our draft Trusts (Scotland) Bill is aimed at providing a modern system of trust law, allowing Scotland to compete more effectively in the global trusts world.”

More on this, including the full report can be found here.

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OPG Scotland update on Power of Attorney waiting times

“25 August 2014

Update on Power of Attorney Submissions

There is a waiting period before your power of attorney (PoA) can be processed and returned to you.

  • EPOAR submissions: 24 day waiting period, we are working on PoAs received on and around 18th July 2014
  • Manual submissions: 27 week waiting period, we are working on PoAs received on and around 21st February 2014

If there is a genuine urgency, we will expedite the registration of a PoA ‘on cause shown’. We ask that people respect this service and only use it in cases of true urgency to avoid defeating its purpose.”

More on this issue can be found here.

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“Delaware becomes first US state to give executors broad digital assets access”

Delaware has become the first US state to grant deceased residents’ executors the right to take over their digital assets such as email and social media accounts.   

This is from an article in ars technica.

“While some states, including Idaho and Nevada, have some existing provisions pertaining to limited digital assets for heirs, they are not as broad as the new Delaware law. For now, the state’s version of UFADAA only applies to residents of Delaware, one of the smallest states by population and land area. If other states don’t follow suit soon, people creating family trusts could conceivably use this Delaware law to their advantage, even without residing in Delaware. However, even though many tech companies (including Twitter, Facebook, and Google) are incorporated there, they will not be affected by the new law.”

The whole article can be found here.

A link to an earlier blog on digital assets can also be found here.

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Scottish Government consultation on technical issues relating to succession

The consultation seeks views on jurisdiction and choice of law; wills and survivorship; rights of succession in limited circumstances; bonds of caution and the timescale for a surviving cohabitant to make a claim on a deceased cohabitant’s intestate estate. 

The consultation is open until 7 November.

The consultation can be found here.

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CLP Holding Company Limited v. Rajinder Singh and Parvinder Kaur, 31 July 2014 – whether VAT payable on the purchase price –contract incorporating Standard Conditions of Sale

Case from the Court of Appeal for England and Wales concerning a sale of freehold property in the West Midlands. The central issue for the court was whether VAT was payable on the purchase price.

The Purchase Price was defined in the contract as being £130k (no mention was made of VAT in the definition). However, the contract also incorporated the Standard Conditions of Sale[1] (4th Edition) except where they were in conflict with the express terms of the contract.

Clause 1.4 of the Standard Conditions provides:

“1.4.1   An obligation to pay money includes an obligation to pay any value added tax chargeable in respect of that payment.

1.4.2     All sums made payable by the contract are exclusive of value added tax.”

Contracts were exchanged and the transaction completed in August 2006. CLP, the seller, opted to tax and became liable to pay VAT on the transaction. HMRC raised a notice of assessment in late 2007. In March 2008 CLP’s solicitors wrote to the purchasers’ solicitors indicating that the purchasers were liable to pay the VAT due (£22,750) to CLP. The purchasers failed to pay and CLP raised proceedings against them.

The court noted that the only reasonable interpretation of clause 1.4 was that the purchasers would have liability for any VAT. Also, previous case law provided powerful support for CLP’s argument that the purchase price of £130k was exclusive of VAT and that the purchasers were liable for any VAT due on the transaction.

However, the analysis did not end with the ascertainment of the meaning of clause 1.4; the contract had to be interpreted as a whole in the light of all the circumstances of the parties’ relationship and the relevant facts surrounding the transaction known to them. In that regard the following points were relevant.

It was never suggested that CLP ever communicated to the purchasers that it had exercised the option to tax.

  1. The purchasers were individuals and, whilst the property was commercial, there had never been any suggestion that they were aware or had any reason to suppose that the transaction might be subject to a VAT charge.
  2. The purchase price for the property had been agreed in principle a considerable time before completion and had been paid over by the purchasers to CLP by, at the latest, 2005. There was never any suggestion that VAT might be payable, still less that the purchasers would be liable for it. To the contrary, a letter from CLP’s solicitors in March 2006 contained an express acknowledgement that CLP had received “all of the sale monies of £130,000 on this matter, subject to contract”.
  3. The standard requisitions had asked for details of the exact amount payable on completion and had elicited the response: “Balance of purchase monies”. No hint was given that VAT was or might be payable.
  4. The contract provided that the “Purchase price” was £130k. It contained no indication that this price was exclusive of VAT. Indeed it was clear that this and no other sum was due upon completion because the contract included a table in which details of any “Other payments/ allowances” could have been (but were not) included. Moreover, and importantly, the contract provided that where there was any conflict between the express terms of the contract and the Standard Conditions, the express terms of the contract would prevail.

Taking all these matters into consideration the Court took the view that a reasonable person would have understood the parties to have intended that nothing was or could become payable by the purchasers over and above the specified purchase price of £130k.

Notably, in the particular circumstances of the case, the court found that it was not possible to interpret “Purchase price” as the price exclusive of VAT. As such, it considered that a reasonable person would consider that the express terms of the contract were not reconcilable with clause 1.4 of the Standard Conditions. In those circumstances, the court held that the express terms of the contract had to prevail.

The full judgement is available from BAILII here.

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

[1] Standard terms for the sale of property in England and Wales.

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OPG (Scotland) asks for directions from Glasgow Sheriff Court on Power of Attorney validity issue

This is from OPG Scotland’s website news section.

“31 July 2014

Update on Power of Attorney (PoA) Validity Issue

The Public Guardian has been made aware that the Clydesdale Bank has decided not to pursue its appeal against the decision of the Sheriff at Glasgow. The Public Guardian is conscious that the decision raised a number of issues, including that of the validity of the power of attorney in question. The Public Guardian is in the course of making an application to Glasgow Sheriff Court under s.3 of the Adults with Incapacity (Scotland) Act 2000 in order to obtain directions from the Sheriff on a number of those issues. The procedure to be followed by the OPG should give an opportunity for PoA validity issues to be fully explored. The Public Guardian does not expect to comment further while that application is pending.

Sheriff Baird’s Opinion can be accessed from this link.”

My earlier blog on this issue can be found here.

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