Ancillary rights as real rights

This article focuses on the issue of possession of different kinds of rights under a lease, and how they can be constituted and need to be dealt with in the Land Register. It is part of a longer paper dealing with the identification of the requirements for a lease.

There are generally recognised to be a number of essential characteristics for a contract to be a lease. Shortly put, these appear to be (1) exclusive possession of heritable subjects; (2) separate parties as landlord and tenant; (3) an ish; and (4) a rent. Possession sounds simple, but it is not completely straightforward.

Possession of what?

For an agreement to be a lease there must be exclusive possession of, at the least, certain uses of the heritable subjects concerned (Rankine, Leases, p 137 and his definition on p 1; Rennie et al, Leases, chapters 5, 30).

It is commonplace that a minerals lease, a farm lease and a sporting lease could all co-exist over the same space (or cadastral unit?), and such situations exist in land-registered subjects already. Each tenant enjoys exclusive possession of the particular use of the subject (minerals, agriculture, sporting rights) let to that tenant, and each such lease can be a real right under the 1449 Act. Note, however, that sharing the same uses, e.g. two people both being allowed to graze stock in the same field, does not amount to exclusive possession for either and thus there is no lease. No doubt with a bit of lawyers’ sophistry, difficult cases can be dreamt up, but the courts are there to sort them out, such as with opposite owners of salmon fishings in a narrow river, as envisaged in Fothringham v Passmore 1984 SLT 401.

Possession and ancillary rights

For the law of leases to work at all, ancillary rights granted to the tenant by the landlord have to enjoy the same status as the rights to occupy the principal lease subjects. See, for example Campbell v Maclean (1870) 8M (HL) 40, and Gyle Shopping Centre v Marks & Spencer plc [2014] CSOH 59. (See also Rankine, p 207, and Rennie et al, para 9.04.) Setting aside for the meantime the law about conditions not inter naturalia of a lease, an instant’s reflection will make one realise that if, for example, the ancillary right of access across the ground neighbouring the let subjects is not just as real as the possession of the let subjects themselves, the whole law of leases would become inoperable without extraordinary precautions to fortify the ancillary rights (such as an access); and Gyle Shopping Centre demonstrates that the law acknowledges the “real” character and continuing effect of such ancillary rights notwithstanding any change in ownership of the subjects over which they subsist.

The rights comprised in a valid lease therefore include rights to exclusive possession (under certain conditions) of heritable subjects, but also include ancillary and very probably non-exclusive rights, for example rights of access to the let subjects (such as up a common stair).

A non-exclusive right to use property cannot in itself be the subject of a lease because it fails the test of exclusive possession, but it can and very frequently is an ancillary right to a lease without which the lease would be meaningless and of no value.

Practical effect of these rules

Accepting this as a general proposition, what follows? A single landlord can grant a lease and its associated ancillary rights over their own property. (The position of ancillary elements in an agreement – including a lease, properly so called – which are not inter naturalia of a lease is not explored in this paper but is not material to the discussion about ancillary rights which are natural to a lease.)

Consider the following situations:

Diagram 1

The whole property is owned by A, who is the landlord of the whole area when the lease is granted. The lease includes exclusive possession of some use of the principal let subjects, and an ancillary right of access.

This lease can be registered under the 1857 Act, if of long enough duration.

Diagram 2

A then sells part of the ground over which the ancillary rights subsist to B. These ancillary rights remain in effect by virtue of their association with the principal lease subjects: Gyle Shopping Centre. If it is the case that landlord A could constitute these ancillary rights (which are equally as real as the rights to exclusive possession of the principal let subjects), and such rights subsist when landlord B comes on the scene, it seems clear that there is no reason in principle why two owners A and B, owning property as in the second diagram, could not collaborate to grant a valid lease of the principal subjects and the ancillary rights in the same manner as landlord A did in diagram 1. There is no reason in principle why the ancillary rights granted by owner B should not be equally valid by association with the principal let subjects within owner A’s ground as when the lease in diagram 1 was granted by a single owner of the whole property.

Note, however, that it is self-evident that if the ancillary rights do not involve exclusive possession, owner B cannot grant an effective lease of those ancillary rights as a standalone agreement with the tenant of the principal let subjects, because those rights fail the test of what amounts to a lease by virtue of the lack of exclusive possession of anything.

The writer has come across elaborate attempts to get round what is essentially a fairly simple conceptual position, with parties in the position of owner B being invited to grant servitudes or the like in favour of all or part of the property of owner A so that the right to use such servitudes can be incorporated in the lease by owner A to the actual tenant, but there seems no reason in principle why any of that should be necessary. Indeed it can lead to confusion as to the basis of linkage of the different rights to the tenancy itself, as to what happens when properties change hands, and as to whether or not the rights granted by owner B are actually exercised in any meaningful sense.

Setting up a lease in this situation

How would the ancillary rights over owner B’s property be constituted? Given that a lease is a mutual contract (notwithstanding that once properly constituted it may create a real right), the writer believes that the consent of all the existing parties to the lease is necessary if an approach is made to owner B to grant such ancillary rights. It is probably incompetent to “buckle on” such ancillary rights to an existing lease purely by agreement of the tenant and a party in the position of owner B, as to do so breaches the principle of mutuality – the other parties to the lease should consent.

Land registration

A major consideration nowadays is the effect of the rules about land registration. One might suppose that the discussions leading to the Land Registration etc (Scotland) Act 2012 did not particularly address these issues, and for example in Gretton and Reid’s paper on that Act and its associated rules (Edinburgh Law Seminar Series 2014) the status of such rights is not gone into in any depth. Nevertheless, as far as Registers of Scotland are concerned, given that the ancillary rights (so long as they are explicitly associated with something which is itself a valid lease) are equally “real” rights and subsist as long as the lease subsists, there should be no difficulty in registering the lease against the property of owner B quoad the ancillary rights affecting his ground at the same time as the registration against property A, just as readily as against the property of owner A.

When the whole property affected by the lease was in single ownership, as in diagram 1, that lease would be registered against the whole of that property. At any rate, going back to diagram 2 where owner B acquired from owner A with the lease already in place, the lease would have to continue to affect owner B’s title in any event, so it appears clear that there can be no objection to constituting that position in the first place under the existing land registration scheme.

Shared plots and the 2012 Act

The commissioners who prepared the Scottish Law Commission report no 222 that led to the Land Registration (Scotland) Act 2012 commented several times that they were not addressing the substantive law of leases in that report (see, e.g. para 9.9). In their discussion of shared area title sheets (relating to, for example shared back greens) in part 6 of the report, they comment, perhaps surprisingly, at para 6.10: “The same should apply for co-tenanted areas as for co-owned areas. We recommend:

“27. The previous recommendation [i.e. for separate shared title sheets] should apply, mutatis mutandis, to cases involving registered leases.”

Schedule 1 to the 2012 Act may not be as clear as it could be where it refers to “co-tenanted” subjects, and might suggest to the unwary a misunderstanding of what the law actually is. Given that exclusive possession of something is essential before a contract can be a lease in the first place, this suggestion for shared title sheets must be understood to relate to ancillary rights which are shared by tenants who have their own exclusively possessed principal subjects somewhere else. Registers are believed to share this view and to be giving the topic further consideration before seeking to make use of sched 1.

The whole issue of what is needed to constitute a valid and effective lease is one which needs a longer paper than the present; however there is a need to understand properly how ancillary rights granted with a lease should be treated in practice, and the answer, I consider, is a lot simpler than some may think.