The new law of real burdens

Reallotment of feudal burdens

Sections 18-32 of the 2000 Act, dealing with the preservation or reallotment of certain limited categories of real burdens, are very detailed and a full description is beyond the scope of this article. (For detailed comment on sections 18-20, see Wortley, “Preserving Feudal Burdens in Praedial Real Burdens”, 2003 Scottish Law Gazette). It is therefore proposed simply to describe briefly the intention underlying each of the options available to the former superior, all of which require to be exercised by the appointed day. Accordingly, solicitors should from now on be considering with their clients who own superiorities, which feudal burdens these clients wish to continue to be able to enforce after the appointed day by service of the appropriate notice or notices at any time up to and including 27 November 2004.

The first of the options available to the superior may arise where the latter is the owner of other land in the vicinity of the land subject to the real burden which he wishes to continue to enforce. In these circumstances, the superior may register in the Land Register or in the Register of Sasines as the case may be (or in both registers if either landowner’s title is registered partly in one register and partly in the other), a statutory notice nominating the land which he wishes to become the dominant tenement, that is to say the land which henceforth is to have the benefit of the real burden which the superior will continue to be able to enforce, not qua superior, but as proprietor of the land which is to be benefited. Before executing the notice the superior must send a copy by post to the proprietor whose property is to continue to be subject to the real burden, and before submitting it for registration the superior requires to swear or affirm before a notary public that “to the best of the knowledge and belief of the superior all the information contained in the notice is true”. The notice will only be accepted by the Keeper of the Registers for registration if one of four conditions is met. These are, first, the so-called 100 metre rule, i.e. that the land which the superior has nominated “has on it a permanent building which is in use wholly or mainly as a place of human– (i) habitation; or (ii) resort, and that building is, at some point, within one hundred metres (measuring along a horizontal plane) of the land which would be the servient tenement”; or, secondly, that the real burden consists of a right to enter or otherwise make use of the burdened property; or, thirdly, it consists of a right of pre-emption or redemption; or, fourthly, that the interest in land which is to have the benefit of the real burden consists of minerals, salmon fishings or some other incorporeal property and it is apparent from the terms of the real burden that it was created for the benefit of such land.

The other possible options for reallotment of real burdens were not included in the Scottish Law Commission’s draft Bill but were added to the 2000 Act by Scottish Ministers. They are to be found in sections 19 and 20, the first of which allows the superior again to nominate other land of which he is the proprietor, this time without any geographical limits as to the existence of permanent buildings, which he wishes to be benefited by the real burden, and to serve notice to that effect on the feuar inviting him to enter into an agreement to continue the burden in existence with or without modification. Thereafter, if the agreement is signed by both parties it is registrable in the Land Register or the Register of Sasines.

Scottish Ministers attempted to justify the provision by pointing out that there may be counter-obligations in the former superior’s title which the burdened owner would wish to remain in force, but they also admitted that it is designed to deter a flood of applications to the Lands Tribunal and was therefore included as a compulsory step in pursuing the additional option available to the superior contained in section 20. That option is that where the superior has tried and failed to reach agreement with the feuar, he may apply to the Lands Tribunal for the benefit of the real burden which he wishes to continue to maintain in force to be reallotted to other land of which he is the proprietor of the dominium utile. Pending determination of the application by the Tribunal the superior may execute and register a notice stating that the application to the Tribunal has been made, the effect of which is to maintain the burden in force until the application has been dealt with by the Tribunal even after the appointed day. Otherwise, of course, the burden would be extinguished on that day.

The Tribunal’s decision is final and binding and it is given little guidance as to the criteria to be applied in arriving at its decision, other than a general direction to the effect that it may grant the application if it “is satisfied that, were the real burden to be extinguished, there would be material detriment to the value or enjoyment of the applicant’s ownership (taking him to have ownership) of the dominant tenement” (wording as amended by the 2003 Act). Whatever order is made by the Tribunal, it falls to be registered against both properties in the Land Register or Register of Sasines at the applicant’s expense, and it is also made clear that if the former feuar lodges objections to an application, unless “his actings are vexatious or frivolous” the Tribunal will not make an order against him for payment of the applicant’s expenses.

Development value burdens

The 2000 Act contains important new provisions with regard to development value burdens which will result in their being unenforceable in accordance with their terms after the appointed day.

Sections 33-40 of the 2000 Act demonstrate that Ministers are well aware that in recent years a practice has grown up of land being sold at undervalue by way of a feu disposition containing a real burden prohibiting the use of the land for any purpose other than its existing use, and providing that in the event of the feuar obtaining planning permission for change of use or a sale of the land taking place at a price which clearly includes development value, a mark-up or clawback formula comes into effect and the superior is entitled to participate in the development value realised or deemed to be realised by the feuar. Sections 33 and following provide that where before the appointed day land was feued subject to a real burden reserving for the superior the benefit of any part of the development value of the land and the consideration paid was “significantly lower than it would have been had the feu not been subject to the real burden”, while the development value burden will cease to be enforceable on the appointed day, the superior may before the appointed day reserve the right to claim compensation by executing and registering or recording a notice in the form of Schedule 9 to the Act. That notice, among other things, requires to set out the terms of the burden and to the best of the superior’s knowledge and belief the amount by which the consideration was reduced because of the imposition of the burden. The notice must also state that the superior reserves the right to claim compensation in terms of section 35. That section provides that where the notice has been registered under section 33 the superior or, after the appointed day, the former superior may, if there was a breach of the burden at any time in the five years preceding the appointed day or an occurrence within 20 years after that day which would have constituted a breach had the burden subsisted, make a claim for compensation by notice in writing served on the owner of the land, not later than three years after the appointed day or later occurrence.

Section 37 specifies the amount of compensation which may be claimed, and the statutory formula is not good news for landowners who have sold land at undervalue which they consider has the potential for realisation of some development value if planning permission is subsequently obtained by the former feuar or its successors for change of use, for example, to a housing or retail development. While subsection (1) states that the amount of compensation is to be such sum “as represents, at the time of the breach or occurrence in question, any development value which would have accrued to the owner had the burden been modified to the extent necessary to permit the land to be used, or dealt with, in the way that constituted the breach”, subsection (2) goes on to state that the amount payable “shall not exceed such sum as will make up for any effect which the burden produced, at the time when it was imposed, in reducing the consideration then paid or made payable for the feu”. These provisions not only mean that no account is taken of the effect of inflation in the intervening period between the grant of the feu and the breach of the development value burden, but also that there is no possibility of the burden being enforceable by the former superior in accordance with its terms, that is to say the mark-up or clawback formula in the feudal grant is ignored and is unenforceable, unless of course the parties are still the parties to the original transaction in which case the formula will still be enforceable by contract.

The next part will consider the meaning and creation of real burdens under the Title Conditions (Scotland) Act 2003