"Mere squatters"?

In 1993 Dundee Council disponed a medical centre to a GP partnership, who operated two medical practices. Partners resigned and new partners were assumed. The GPs entered into a sale and leaseback arrangement. The two partnerships merged, forming the Terra Nova Group Practice. The partnership continued to operate and paid the rent, but the remaining named lessees were three now retired partners and one continuing partner. The three retired partners perceived a possible source of future risk and raised proceedings for declarator and removing against the continuing partners. The fourth lessee, called as a defender, chose not to be part of the court proceedings.

The remaining partners sought to defend the action on the basis that not all of the joint lessors concurred in the action, and that they had a right of occupation. Lord Woolman (Morris v Eason [2012] CSOH 125; 26 July 2012) held that the defenders had no right to occupy and were in no better position than squatters. This triggered the exception to the rule of unanimity in removing, as stated by Rankine in his Law of Leases (3rd ed), 82-83, that “The defence would not be listened to if tendered by a mere squatter, occupying without semblance of right”.

The Terra Nova Medical Group was in natural possession of the subjects, but what was the nature of its right to do so? The landlord knew of the possession and was in receipt of payments in respect of “rent”. The lessees tolerated this state of affairs for some years following their retirement in 2009. The defenders had argued that the practice enjoyed “a right of occupancy subsidiary to the lease”, and pushed to name this right, with reluctance, suggested a licence.

Unanimity rule

A licence is a particular species of contract granting a right, which remains personal, to use and/or possess land, unlike a lease which can become a real right. But a contract requires a meeting of minds – consensus in idem – and nowhere in the case can any ghost of consensus be discerned. The best the defenders could hope for was to claim that the pursuers, being fully aware of the position, were personally barred from taking action against them. Lord Woolman dismissed the licence argument, which could only leave the defenders in the precarious position of squatters. 

The defenders’ argument of unanimity in seeking removing implied that the co-lessees were reasonably analogous with co-owners. The rationale referred to in Rankine was best explained by Erskine in his Institute at II vi 53:

“A proprietor who has no more than a joint interest with others in a land estate, pro indiviso, cannot by himself remove tenants from his part of the land, without the concurrence of the joint proprietor, as long as the land is undivided; because every inch of the ground belongs to both proprietors, pro indiviso, in determinate portions; and consequently, it is impossible for the tenant to remove from the share of the lands belonging to the pursuer in the removing, without also removing from that which is vested in the other proprietor; to which the law cannot compel him, unless that other concur in the suit.”

The general law of contract, as stated by Gloag (The Law of Contract (2nd ed), 203) is that “if the action is for the enforcement of a contractual right which is in its nature indivisible, all those entitled to enforce the right must join in the action, no one creditor having a title to sue separately, and without the authority of the others”. The “mere squatters” exception is Rankine’s, and Gloag does not expressly go quite so far. Further discussion on whether the exception that Rankine allows in the case of leases can be extended so as to encompass licences, is outwith the bounds of this brief note.

Trust interest

In the question of the rights of the medical practice to occupy, there was another option that does not appear to have been considered in the action. It is necessary to have regard to the law of partnership and its intersection with the law of trusts.

It is clear that the subjects were “originally brought into the partnership stock or acquired... on account of the firm, or for the purposes of and in the course of the partnership business” (Partnership Act 1890, s 20(1)). They therefore comprised “partnership property”.

Section 20(2) of the 1890 Act provides that “the title to and interest in any heritable estate, which belongs to the partnership shall devolve according to the nature and tenure thereof, and the general rules of law thereto applicable, but in trust, so far as is necessary, for the persons beneficially interested in the land under this section”. This is a classic view supported by George Joseph Bell in his Commentaries (4th ed), II.

Francis Clark, writing in his Treatise on the Law of Partnership (1866) at p168, posited that: “whatever, therefore, by express contract, or by the operation of law, becomes the property of the company, must be taken as held in trust for the uses and purposes of the company. Heritable property is held in the names of one or more of the partners, or in those of third persons as trustees chosen for that purpose; moveables or personality appear to be held by all the parties jointly or pro indiviso, as trustees for the concern.

However, it only became possible for a partnership to own land directly following the coming into force of s 70 of the Abolition of Feudal Tenure etc (Scotland) Act 2000. In 1993, the property was vested in the partners as trustees for the partnerships. The property continued to be used for the purposes and in the course of the partnership business. Admittedly, the majority of the lessee partners retired, but remained trustees.

The pursuers could have relied on their right under s 3(a) of the Trusts (Scotland) Act 1921 to resign. Section 20 of the 1921 Act would have divested the resigning trustees of their interests in the lease, which would have accresced to the remaining trustee who was an active partner in the united practice without necessity of conveyance or other transfer.

The lease would have vested in the lessees as trustees for the partnership, which would have occupied the subjects as the beneficiary under a trust. The partnership’s status would have been that of an improper (or “trust”) liferenter, and that is by no means analogous with that of a “mere squatter”.

In correctly identifying the nature of the right upon which the medical group occupied their surgery, the entire action might have been avoided. There is still a place for the 19th century classics on lawyers’ bookshelves.