UK: Scottish Real Estate In 2018: The Magnificent Seven

Last Updated: 18 December 2018
Article by Allan Cairns, Lisa Cruickshank and Sarah Lynn Peock

It's always good at this time of year to reflect on what has changed in the Scottish real estate market over the last 12 months. As ever, it's been a busy year with lots of change in the legal landscape, so we've picked out our top seven significant changes:

1 Three-yearly returns for LBTT leases

In April 2018 the first three-yearly returns for Land and Buildings Transaction Tax (LBTT) leases started to become due for Scottish commercial leases entered into on/after 1 April 2015.

The LBTT rules require tenants of subsisting non-residential Scottish LBTT leases to submit LBTT returns to Revenue Scotland every third anniversary of the lease. These returns must be submitted even if no changes have been made to the lease or rent since the previous return, and even if no additional LBTT needs to be paid. The three-yearly return is in addition to the requirement on the tenant to submit an LBTT return if an LBTT lease is assigned and when it terminates. Revenue Scotland charges penalties for late (or non-) submission of the returns, and charges interest on any late LBTT.

For further information, see our update Commercial tenants in Scotland must submit three-yearly LBTT returns. Note that LBTT only applies in Scotland. English properties are still subject to the SDLT regime, under which there is no three-yearly return requirement.

2 Register of controlled interests in land

In June 2018 the Scottish government produced draft regulations to introduce a new Register of Persons Holding a Controlled Interest in Land in April 2021. The aim is to improve transparency as to who has control over decision-making in relation to Scottish land, particularly where this is not clear from consulting the existing property registers.

For land which is owned by (or let for more than 20 years to) a "controlled interest", i.e. trusts, partnerships, unincorporated associations or overseas companies, or where there is an arrangement in place giving a third party significant influence or control over the land, details will need to be registered about the people who are ultimate holders/influencers of the controlled interest. Failure to provide the required information to the new register will be a criminal offence, punishable by a maximum fine of £5,000. In November 2018 a committee of MSPs published a report criticising certain elements of the draft regulations, so we will quite possibly see amendments made to the proposals over the coming months.

Note that the UK government has proposed to create a similar register, also by 2021, although its scope is to be restricted to overseas entities who own (or are tenants of registrable leases of) UK property. Under the UK proposals, overseas entities will be prevented from dealing with land unless and until they have complied with the registration requirements. For more information see our update BEIS publishes draft Registration of Overseas Entities Bill. It remains to be seen what the interplay will be between the new Scottish and UK registers.

3 New community right to buy abandoned, neglected or detrimental land

In June 2018, a new community right to buy came into force whereby qualifying community bodies can apply to the Scottish Ministers to purchase eligible land (and/or buildings) which is abandoned, neglected or environmentally detrimental. Applications must comply with fairly stringent criteria, including that the community body has tried and failed to acquire the land voluntarily. As soon as an application has been registered, the owner of the land is prohibited (subject to a few exceptions) from transferring, or taking steps to transfer, the land to anyone, and any ongoing pre-contract sale negotiations must stop. A successful application will result in an order requiring the land to be sold to the community body for market value.

The new right is in addition to the original community right to buy, which was created by the Land Reform (Scotland) Act 2003. The original right covers all types of land in Scotland (subject to certain exceptions), not just land that is abandoned, neglected or environmentally detrimental. It is triggered only when land is being sold (so acts like a right of first refusal of the community body), as opposed to the new right, which can be exercised at any time regardless of whether the owner wants to sell.

For further information, see our update A new power of compulsory sale.

4 Compulsory purchase and sale

2018 has also seen advancements in local authorities' powers in relation to abandoned and neglected land.

Compulsory purchase

The Scottish government has expressed an ambition for compulsory purchase orders (CPOs) to play a greater role in delivering development and regeneration in Scotland. In July 2018 the Scottish government published a series of guidance notes on all aspects of the compulsory purchase process, and in August 2018 launched a register of all CPOs considered since 1 January 2012.

Compulsory sale

In August 2018 the Scottish Land Commission (SLC) (a public body set up by the Scottish government in 2017 to lead land reform) published a proposal to give local authorities the power to require vacant or derelict land to be sold by public auction under a new compulsory sales order (CSO) regime.

The new community right to buy and local authority compulsory purchase regime (both discussed above) are mechanisms with similar aims, but the SLC report highlights their limitations, and suggests that the proposed CSO regime could be more effective. The SLC believes the CSO regime could be particularly useful in facilitating constructive dialogue between local authorities and owners of problematic sites. The Scottish government has committed to bring forward CSOs during the course of the next parliament, so watch this space. For further information, see our Planning Law Blog entry.

5 Register of letting agents and code of practice

Recent years have seen an overhaul of the private rented sector in Scotland, including the introduction of: private landlord registration, security deposit scheme rules, a new Housing and Property Chamber to deal with landlord and tenant disputes and (last but certainly not least) a new private residential tenancy introduced in 2017. 2018 has seen yet more reform in this area: anyone doing letting agency work for Scottish residential property must now:

  • As from 31 January 2018: comply with a letting agent code of practice, which sets out expected standards for letting agents and covers matters such as the handling of rent and deposits, and the requirement to obtain professional indemnity insurance; and
  • As from 1 October 2018: be registered in the Scottish Letting Agent Register, which opened on 31 January 2018. It is a criminal offence to do letting agency work in Scotland without being on the register, punishable by a fine of up to £50,000 and/or up to six months' imprisonment. The conditions for registration include the applicant having undertaken the relevant qualifications and training, and to have passed a "fit and proper person" test. Registration must be renewed every three years.

The aim of these requirements is to raise standards in, and offer greater protection to those in, the private rented sector. More information is available on mygov.scot.

6 Right to roam cases

2018 saw two important court cases about the nature of the "right to roam" in Scotland, known more formally as public rights of access under the Land Reform (Scotland) Act 2003. In both of the cases, the landowners were ordered by the court to unlock/remove gates and other deterrents to public access which they had erected on their land. Some key points to take from these cases are as follows:

  • The purpose of a landowner's actions must be assessed objectively, i.e. the court must ask whether on an objective basis the main purpose is to prevent/deter public access to land. The actual intent of the landowner (such as to responsibly manage the property, or to counter anti-social behaviour, as was alleged in the respective cases) is irrelevant.
  • It does not matter if the deterrents were constructed prior to the 2003 Act coming into force – the court can order historic deterrents to be removed.
  • Whilst the 2003 Act allows homeowners a degree of privacy and undisturbed enjoyment of their home, the extent of privacy allowed in any given case must be assessed on an objective basis, i.e. the court must ask whether a reasonable person would expect the land to benefit from the home privacy protection rules.
  • Human rights arguments were mounted by the landowners in both cases, but were successful in neither.

These cases demonstrate a willingness of the Scottish courts to enforce public rights of access across private land and highlight how important it is for landowners to be aware of and comply with the right to roam rules and responsibilities.

7 New third party rights regime

Third party rights are rights which are conferred by contracting parties on a person/entity who is not a party to the contract. Until February 2018, the rules around third party rights in Scotland existed only at common law and not in statutory form.

The Contract (Third Party Rights) Scotland Act 2017 came into force in February 2018, effectively codifying, and at the same time removing certain recognised difficulties associated with, Scotland's third party rights regime.

Whilst not real estate-specific law reform, this Act has seen standard wording introduced into most Scottish real estate legal documentation to exclude the operation of third party rights under the 2017 Act. This has particular relevance to building contracts, and potential relevance to the enforcement of certain property-related obligations (e.g. deeds of conditions, solus/exclusivity clauses in leases etc).

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