Justice and Home Affairs Committee, 11 Sep 2000

Meeting date: Monday, September 11, 2000

Official Report 262KB pdf

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Leasehold Casualties (Scotland) Bill: Stage 1

I welcome Adam Ingram to the Justice and Home Affairs Committee. I apologise for the fact that it is now considerably later than the time which you were advised was the rough start time. I know that you know the score with such things. I do not know if you have come ready with a short opening statement, but, if so, I invite you to make it now, and we can then press ahead with any questions.

Members of the committee have had the opportunity to look at the research note from Scottish Parliament information centre, and to have attended, either themselves or their researchers, the informal briefing. Members will therefore have some idea what this bill is about.

Thank you, convener. First, I thank the committee for fitting consideration of this bill into its very busy schedule. I am delighted to be here to provide you with background information to the bill and, I hope, to answer any questions that you might have.

I will start with some history. In the 18th and 19th centuries, it became common in some parts of Scotland to lease vacant land for periods of 999 years or more for the erection of buildings on it. Such long leases are found particularly in Lanarkshire, Renfrewshire, Ayrshire and Clackmannanshire. Such long leases are no longer possible for residential purposes, because of a change in the law in 1974.

Under every lease, there is obviously a liability to pay a regular rent to the landlord. However, under some long leases, leasehold casualties also require to be paid. Casualties are additional payments which fall due at regular intervals, typically every 19 years, or on the occurrence of particular events such as assignation of tenancy.

Casualties take various forms, the most iniquitous being based on the annual rental value of the leased property. Landlords can extract something for nothing from tenants by effectively taxing them on the value added to the property by the tenants themselves.

In recent years, landlords in some areas who did not claim casualties have been replaced by landlords who saw financial possibilities in them. One landlord claimed outstanding leasehold casualties, and took legal proceedings in those cases where he felt it necessary. In such cases, he proceeded on the basis that the tenants may have had a claim against the solicitors for not spotting the liability at the time when they bought the property. Those actions caused considerable distress to tenants. The matter was referred by the Government of the time to the Scottish Law Commission, which recommended that leasehold casualties be abolished and produced a draft bill.

We do not know if the potential for commercial gain from leasehold casualties has been exhausted, but they are an anachronism. Feudal casualties were abolished in 1914. Since 1974, it has been law that residential leases may not, with certain exceptions, exceed 20 years. Now that we have entered a new century, it is time that this anomaly in the law was brought to an end, once and for all.

Although the Scottish Law Commission bill has been available since 1998, no time was made available for it at Westminster. The Scottish Parliament provides an ideal forum for distinctly Scottish legislation of this type. I am very pleased to say that I have received support from all quarters, including invaluable drafting assistance for my bill from the Executive.

The bill contains two changes from the original Law Commission bill. They are to provide for compensation in the case of casualties based on rental value, and to make a saving for legal proceedings pending against the Keeper of the Registers of Scotland. In the case of rental value casualties, compensation will be based on the ground rent only, to avoid landlords reaping the benefit of the work done by successive tenants on the buildings. With regard to the keeper, it is wrong that someone who is entitled to indemnification by the keeper for mistakes on the register should lose that entitlement as a result of this legislation.

Abolition takes place on the day the bill is introduced, provided that the bill is passed. If my bill is passed, abolition will have taken place as of 10 May 2000. The liability for compensation will be triggered by a written notice that must be issued by the landlord within a year of the bill receiving royal assent. A table of compensation payments is provided in the bill, although the level will depend on the amount of the casualty and the length of time the landlord would have to wait to receive it. The idea is to award the landlord a sum of money that, if invested, would have yielded the same amount at the due date. The highest compensation will therefore be payable for casualties that are due soonest. We do not think that, in any case, this will exceed around £60. The compensation scheme detailed in the bill ensures compliance with the European convention on human rights.

I know that Phil Gallie has questions. Pauline McNeill, who is a co-sponsor of the bill, may also want to comment.

As Pauline McNeill is a co-sponsor of the bill, I shall let her speak first.

She does not have her hand up.

In that case, I shall start by congratulating Adam Ingram on introducing this bill. I shall be mischievous and say that this legislation was something that Michael Forsyth had in mind, so I am delighted that Adam is taking it forward. I suspect that he will be the first member to have a private bill implemented in this Parliament, so he will achieve a place in history.

I have a couple of points to make, Adam. On the saving of proceedings, you referred to the fact that the Scottish Law Commission did not feel that that was necessary and had omitted it. Why do you think that it is so important and why have you included it in the bill?

Are you talking about the extra compensation for rental values?

No. I mean saving of proceedings where legislation has started, in section 8.

I am not entirely sure why the Scottish Law Commission did not include that. However, we wanted to introduce a clause that would mean that people could not take action after the introduction of the bill. It stops the rush of landlords seeking compensation, so it is a fairly clever mechanism to stop that type of thing happening.

You have built in a date, but there was some time before that date was built in, from the time when the bill was first lodged as a motion, when there were signs that the bill would get support. Were there any signs of a rush then?

No, there were not. However, it is difficult to ascertain whether it is possible to take commercial advantage of the leasehold casualty loophole. As you are aware, we are dealing with one or two landlords who saw the advantages of exploiting the loophole in the first place. It could be that the immediate take-up has already happened, and it would be a few years before landlords had another opportunity to take advantage of the loophole again.

That is fair comment. You referred to compensation. I recognise that the compensation element is included to cover the ECHR. For those who held the right to apply the existing law for a long period of time there is perhaps some justification for that. However, those who sought to make a quick buck and buy in in recent times will also get compensation for their actions. Do you feel a bit uncomfortable about that?

I would prefer to have a situation, as was outlined in the Scottish Law Commission bill, where there was no compensation for the rental value casualties. However, we have all seen the situations that arise with ECHR compliance, and I did not want my bill to fall foul of that. The compensation figures are so low that I think not many people would consider it worth their while to raise actions.

I hope that the ministers will take note of Adam Ingram's open and honest responses.

Any law student or solicitor who has studied Scotland's ancient land laws and feudal tenure, which we have already dealt with, knows that this is one of the many areas of the law that need to be modernised. Although the general public may not exactly be dancing in the streets about a bill on leasehold casualties, the way in which we are presenting it will put across the point that, although there are pockets in Scotland that are affected more than others, the current system has inflicted deep financial damage, risking people's homes and livelihoods.

It is an important piece of legislation. I support Adam Ingram's point that we would prefer to get away with a bill that did not award compensation. The landlords who have taken advantage of the system have known for years that that is what they are doing. Their line has been that they are justified in exploiting any loophole in the law until it is changed. Nevertheless, it would not be useful to frame a bill that would constantly be challenged in the courts.

I congratulate Adam Ingram on initiating this process. I think that this bill will modernise Scottish law, and it is important to get across the message that it will remove a lot of hardship, particularly in the central belt and the south. There is no specific mention of Glasgow in the bill.

I have not come across any examples in Glasgow. I think that the problems are primarily in Lanarkshire and Renfrewshire. A lot of the long leases were for the erection of weavers' cottages and the like, so it is in areas of the country where that kind of home industry was common that those leaseholds were first established.

The research paper indicates that Lanarkshire, Renfrewshire, Clackmannanshire and Ayrshire are most affected. The leaseholds follow a 19th century industrial pattern.

I congratulate Adam Ingram. I am very jealous that his is the first member's bill that will be passed.

We are not sure about that; there is a race on.

I also congratulate Pauline McNeill on supporting the bill, which is part of the framework of land reform. For once, I also thank the Executive for the full briefing that it has provided explaining the mysteries of the actuarial table.

You are not going to ask me a question about the table, are you?

Did you draw up that table?

Certainly not.

He is an economist, you know.

A serious matter has been raised by a senior firm of solicitors, which I shall not name, regarding compensation. The view is that the compensation provision is not really necessary and that the bill would be ECHR compliant without it. I agree with that view, and feel that the bill takes a belt-and-braces approach. What is your view, Adam? Did you originally feel that there should be compensation, or did the Executive pop that in because the spectre of the ECHR is at its back? I agree that the amounts are small, but why should there be a compensation provision at all if it is not needed?

It was the latter reason. Because of the margin of appreciation doctrine, the ECHR would probably allow us to get away without compensation. However, as I said to Phil Gallie, I was not willing to take the risk of holding out for that. It is important to get the legislation on the statute books.

I was going to suggest that Parliament might have voted for it to be there without the compensation and let the erstwhile landlords take the matter to the courts under the ECHR if they wanted to bear all the associated costs.

There was a case four years ago in the Boghead area in Lanarkshire in which the tenant was pursued for around £6,350. The legal bill came to £20,000. A comparison between that level of burden on an individual and the £60 maximum compensation shows that perhaps you are right in principle, but I do not think that £60 is a great deal of money in practice.

My question was whether the landlord would try to apply the ECHR in order to receive £60. Would it be worth it? In the end, that is the only part that is affected. The calculations are a different matter in the bill and are based on a rental value that is different from the current rental value, which is correct. It is not worth going to the wire about, but I think that the measure is not necessary.

As we discussed earlier, a few landlords have taken advantage of the loophole in the law. I would say that the same landlords, if they saw a loophole that had been created by this bill, would simply move their tactics on the ECHR. However, the timing is wrong. Had we been able to consider the matter prior to the ECHR becoming part of our law, we might have been able to run the risk a bit better. The cases that have been successful, and in which compensation has not been required, have been decided on the basis of what is in the public interest. That is vague and I think therefore that it is not worth running the risk.

Christine Grahame might be right in saying that no one would bring a challenge, but the legislation would not be compliant until somebody challenged it. The Presiding Officer has to sign a certificate saying that it is compliant. There could be a theoretical problem, even if there is no challenge. Considering the amount of money that is involved, it seems to me that Adam Ingram is right: why go down that path? The Thingmy General in London—

I think that the title that you are groping for is Advocate General for Scotland.

She is one of my few remaining friends, but I suppose that I have lost her now too. She or somebody else might bring a challenge, in which case—and considering the amount of money involved—it does not seem worth risking the legislation being non-compliant.

I suggest that there is not much point debating this at this point. The legislation may not be signed off as ECHR compliant and we may regret the necessity to pay compensation to people whom we would otherwise consider as being undeserving. Nevertheless, we have to remember that the ECHR applies to everyone, whether we like them or not.

I am looking for basic information. How come somebody has to pay £6,000 to the person who owns the land? Is that because someone has bought up the lease and the payments have been dormant?

Yes.

I would like more background. Does it relate only to private tenancies or to commercial tenancies as well?

I believe that there are some commercial tenancies, but the cases that have hit the headlines have been residential ones. The current tenant was having to shell out for previous payments that had not been made.

Have there been people who have not realised that their land was leased rather than owned and have sold it to somebody else, at which point a landlord has demanded £6,000 for the past 20 years, for example?

Yes. Essentially, the landlord took the view that it was the solicitor's fault for not pointing it out to the tenant, who therefore had the opportunity to sue the solicitor to recover the payment. That is how he squared his—

That is how he squared his conscience.

I seem to remember something about a school in Ayrshire. I am aware of problems relating to schools and school houses that are on leasehold. Presumably, you are talking about the same sort of thing.

Are there any other questions for Adam Ingram? No. Clearly, when everybody agrees, we have a less dramatic meeting. Thank you, Adam. You will be advised of the date of our meetings at which we are scheduled to hear other stage 1 evidence in respect of this bill and you may participate in those meetings if you want.

I understand that we are scheduled to hear from one of the key protagonists in the proceedings some years ago. I ask Professor Robert Rennie to come to the table. Professor Rennie, you are here in your capacity as a representative of the Law Society of Scotland today. You are not a stranger to us either. Perhaps you could introduce your colleague.

Perhaps I could introduce Professor Rennie. I am from the Law Society and am here in my capacity as secretary to the conveyancing committee. It is interested in all aspects of land reform that are going through at the moment. We are actively following the abolition of feudal tenure and leasehold casualties. Professor Rennie is on the conveyancing committee and was a member of the working party of the Scottish Law Commission that drafted the bill. He is the professor of conveyancing at Glasgow University and is also a practising solicitor. I am sure that he will be able to answer any questions that you have.

I apologise for the apparent discourtesy in my introduction, but we did not have confirmation that you would be here. We had understood that we would have only Professor Rennie.

The Law Society of Scotland supports the bill in general terms. The Abolition Of Feudal Tenure etc (Scotland) Bill has been passed and the title conditions bill will be produced by the Law Commission at the end of this month or during next month. Those bills deal only with feudal tenure and there are pockets of non-feudal tenure in various parts of Scotland. There is some allodial or udal tenure in Orkney and Shetland and there are pockets of leasehold tenure in various areas, particularly in Lanarkshire. The reasons why there is leasehold tenure are not clear. One reason is that some estates were entailed, which is to say that they were entailed right down the family so that no one in the family—son to son to son—could get rid of the property except by going to the Court of Session for disentail. One way around that was to lease instead of feu. That has created unusual pockets of 999-year leases.

The bill does not deal with leasehold tenure in general terms. England has legislation dealing with leasehold tenure, as that form of tenure is far more common there than it is in Scotland. The bill deals with the leasehold casualty, which is one of the difficulties of leasehold tenure. As Adam Ingram said, feudal casualties were abolished in 1914. That bill provided that the Court of Session could, if wished, apply the legislation to casualties in leases by passing an act of sederunt.

The Law Society and the Registers of Scotland made a joint approach on that to the Lord President of the Court of Session some years ago. The Lord President took the view that the matter was too controversial to be dealt with by act of sederunt and should be dealt with by primary legislation. As a result of the much-publicised problem of people being asked to pay large sums of money, the UK Government asked the Scottish Law Commission to look at the matter urgently. It produced a report that then lay on the shelf because Scottish legislation was not really of great priority for a UK government. There is therefore an excellent opportunity to show what the Scottish Parliament can do by moving quickly to cure an injustice.

The previous landlords did not bother to enforce the conditions. The largest landlord was the coal board—the Coal Industry Nominees Ltd, to be exact—which inherited the Holdsworth family leases in places such as Wishaw and Bogside. The cost of collecting the tack duties of £2 and £3 a year far outweighed the take. When the government was pushing nationalised industries to get rid of non-core activities, the estates were put on the market and acquired by land speculators who eventually found out that leasehold casualties had not been abolished. That is why the situation arose.

We support unconditionally the abolition of casualties of all types. The rental value casualty is the most pernicious because it involves a calculation of the current market rental value. It can mean a bill for thousands of pounds coming out of the blue. In most cases, there would be a negligence claim against the solicitor concerned, but the difficulty with that is that negligence claims are not quickly settled. They go to an insurance company that then may argue for some time, and the person who is under threat has the worry of that until it is settled.

It is imperative that the bill includes compensation. Article 1, protocol 1 of the ECHR, which deals with property rights, provides for abolishing or tinkering with people's rights in the public interest, so there can be a public interest factor in a private contract. That is jurisprudentially a little odd, but it has been the decision in cases to the ECHR from other European states. However, if compensation is provided, it becomes increasingly difficult to attack the provision. The compensation here is of course derisory.

The ECHR cases make clear that there is no need for an absolute balance between the compensation and the right that is lost—there does not need to be absolute proportionality. If no provision is made for compensation, then the door is opened to somebody saying that a legal right is being taken away and nothing is being given in return, which is an infringement of article 1, protocol 1 of the ECHR.

Thank you. One of the slight difficulties of unqualified and cross-party support for a measure is that there are few questions. Nevertheless, Phil Gallie has one.

Just to maintain the tradition, I challenge you on one point, Professor Rennie. Perhaps if Michael Forsyth had had another term to push this, it would not have been left on the shelf. More seriously, section 8 was left out by the Law Commission and has now been added. It talks about the relevant date, which on my understanding is from May this year, when the bill was introduced. Is Professor Rennie aware of any outstanding cases and, if not, is it worth looking to see if there are any? Is the section actually needed?

It depends what you mean by cases. There may be claims for indemnity lodged with the Keeper of the Registers of Scotland that are under discussion but have not yet become cases in law. I suspect the provision is here as a safety net in case somebody has a claim—for example, the situation that occurred when the keeper made the same mistake as the solicitors and thought that the casualties had been abolished in 1914 and left them out of the land certificates for the landlords. That would be a clear ECHR problem—somebody with a rectification indemnity claim under section 9(12) of the Land Registration (Scotland) Act 1979 that falls in May but that would have been paid.

It is far better that there is a safety net, but do you see a problem of cluttering up the bill?

It is not a big bill, so, in clutter terms, it is not too much. Wait until you see the title conditions bill.

We are advised that it will be introduced considerably later than we had expected.

If this is a daft question, tell me. Compensation under the rental value could be a large amount of money whereas under the ground rent it would be a small amount. For people who had a lease allowing them the large amount, that will now be the small amount. Am I right in saying that at times the percentage difference can be substantial?

Yes.

While I agree with you, in that situation if no compensation is paid, then that will be open to challenge. If some compensation is paid, it does not have to be proportionate, but even so, if the proportion is way out of line, then it is as if none was being paid because proportionality is a question of degree. Do you see a possibility of a challenge under the ECHR because the degree of imbalance is very great?

That is always a potential argument. It is not how the European Court of Justice has dealt with other types of cases, for example, the Duke of Westminster's cases on leases in Belgravia and Mayfair when the UK Parliament brought in the Leasehold Reform Act 1967, which allowed tenants to convert leasehold titles to freehold. The compensation payable was not the value of a house in Mayfair but tended to be the value of the ground, on the basis that the landlord did not build the house. The expense of building the house was borne by the first tenant. The Duke of Westminster's trustees took the case to the European Court of Human Rights, which upheld the UK Government's right to legislate in that manner.

Similarly, Austria was taken to court when it tried to legislate to alter considerably leases and the right to recover rents. It was admitted that the rents that had been negotiated originally were the result of an arm's length negotiation and were commercially the correct rent. However, the European Court of Human Rights ruled that, under the ECHR, the Austrian Government was entitled to make the alterations that it was proposing. When dealing with what is regarded as a land tenure anachronism, there is bound to be a strong public interest argument for allowing a state to interfere with a private contract.

Invariably, the ground rents are small.

Yes. Generally, they are up to £10 a year.

I would like to pursue the issue that Gordon Jackson has just raised. The major interference with the rights of the landlord appears earlier in the bill and concerns how the rental value is to be calculated. That is the meat of the bill. The provisions to do with ground rents act merely as belt and braces. However—and I defer to you on this—if it is necessary for the bill to be ECHR compliant, so be it.

How was the figure of £6,000 arrived at?

Six thousand pounds was a figure plucked out of the air. The leasehold casualties would generally provide something like one full year's rental according to the value thereof on the entry of every singular successor—that is to say, on the new tenant's taking over the lease. The words "according to the value thereof" meant that the landlord, instead of basing the leasehold casualty on the tack duty of £3, would seek to establish the commercial rent for a year for a semi-detached house or a public house—because this applies equally to commercial properties. They would go to a surveyor, who might say that the annual rent for a public house was £20,000. It does not take more than a few months for the rent for even a house or a flat to amount to thousands of pounds.

I understand. Thank you.

Adam Ingram was wondering whether some of the more immediate issues had not been exhausted for the moment. Is that your view? Do you think that we are proceeding with this legislation when the issue is unlikely to become live again for a considerable time?

That is my experience in practice. I practise in the Motherwell-Wishaw area, where there was a flurry of activity when it became apparent that leasehold casualties had not been abolished. That has now died down, but the next time that somebody sells a house the issue will be raised again.

So leasehold casualties may not be a problem for the moment, but unless there is legislation to abolish them the difficulty will recur.

Yes.

As there are no more questions, I thank Professor Rennie for giving evidence to the committee. That was short and pretty painless.