A Guide to the Abolition of Feudal Tenure Act and the Title Conditions Act for Housing Associations

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A GUIDE TO THE ABOLITION OF FEUDAL TENURE ACT AND THE TITLE CONDITIONS ACT FOR HOUSING ASSOCIATIONS

CHAPTER 9 - FEU DUTY

Background to the Feudal System

The feudal system is the system of land tenure applying to almost all of Scotland. It is likely that many housing associations will be feudal superiors. The feudal system is being abolished and after 28 November 2004, land will be owned on a simple, outright, basis. The Glossary at Chapter 13 provides an explanation of the feudal system.

Feu Duty

This Chapter outlines the procedures for those associations which have dealings with feu duty. If your association has nothing to do with feu duty, then the rest of the Chapter is likely to be of limited interest. The following questions and answers should assist in making a quick judgement on what action is required.

What do I have to do to get compensation for the loss of feuduty?

  • You have to claim it from the 'former vassal': the people who will be due to pay the feu duty on 27 November 2004 (who will be the owners of houses at that date).

How do I claim?

  • The Act has forms at the back (in schedules 1, 2 and 3). You have to deliver or send (by registered post or recorded delivery) the appropriate forms to the former vassal 9, who may or may not still be the owner of the property, before 27 November 2006.

How do I know which form to send?

  • You have to work out whether the feuduty is ordinary or cumulo. The Form in schedule 1 is for cumulo. The Form in schedule 2 is for ordinary. In addition where the compensatory payment is 50 or more you must serve a filled out instalment document (see schedule 3 of the 2000 Act).

How do I work out what kind of feuduty it is?

  • It is likely to be ordinary feuduty but this Chapter explains what cumulo feuduty is.

How much compensation will I get?

  • Compensation is the same as the formula used for redeeming feuduty since 1974. The amount varies from time to time but at the moment it is about 20 times the annual payment. The formula is set out in the following paragraphs. You might want to use a solicitor to help you to calculate this - solicitors should be familiar with the formula.

Although the following detailed explanation may appear complex, the procedure is actually fairly simple, with the main difficulty being in determining whether the feu duty is of an ordinary or special (called cumulo) type. The flowchart at the end of this chapter runs through the process, which is essentially the claiming of compensation from the owners who still have to pay feu duty.

Feuduty is a periodic payment due by the owner of a property to their feudal superior. The creation of new feuduties in Scotland was prohibited by the Land Tenure Reform (Scotland) Act 1974 which provided for the redemption of most feuduties. It gave most vassals the power to redeem their feuduty at any time, and when a property was sold, the feuduty would automatically be redeemed as part of the transaction. There would be a cost involved in this, as the Act provided that vassals would in effect have to 'buy out' the feu duty: the formula for doing this is complicated, and at present requires a one-off payment of approximately 20 times the feu duty. The formula is set out in section 4 of the 1974 Act - it requires payment of " such a sum of money as would, if invested in 2_ per cent. Consolidated Stock at the middle market price at the close of business last preceding the date occurring one month before the said term, produce an annual sum equal to the feuduty". A solicitor should be able to assist with the calculation.

Abolition of Feudal Tenure etc. (Scotland) Act 2000

The Abolition of Feudal Tenure etc. (Scotland) Act 2000 (the '2000 Act'), will abolish all remaining feuduties on 28 November 2004 (the 'appointed day'). Compensation will be payable to former superiors by vassals for the loss of the right to feuduties on the same basis as the redemption provisions of the Land Tenure Reform (Scotland) Act 1974. The Superior may claim compensation for feu duty within 2 years from 28 November 2004. If no claim was made within the 2 year period, the superior would lose their right to compensation. Sections 7 to 15 of the 2000 Act deal with feu duty: The following links are to both the Act and its Explanatory Notes (see paras. 36-68).

http://www.scotland-legislation.hmso.gov.uk/legislation/scotland/acts2000/20000005.htm
http://www.scotland-legislation.hmso.gov.uk/legislation/scotland/en/2000en05.htm

The Act does not affect unpaid arrears of feu duty. Normally only arrears of unpaid feu duty from the last 5 years are claimable (see 'prescription' in the Glossary at Chapter 13).

Further information on feuduty may be found from Part 3 of the Scottish Law Commission's Report on the Abolition of the Feudal System (Scot Law Com No 168), available online at:
http://www.scotlawcom.gov.uk/index-1.htm

Claiming Compensation

The process of claiming compensation requires the following steps:

1. Superior determines if there are any existing feu duties for which it wishes to receive compensation.

2. Superior determines if the feuduty is cumulo or ordinary.

  • In a simple, 'ordinary' case, feuduty is payable by a single vassal in respect of a single feu. In this case, the superior should use the form of notice set out in schedule 2 of the 2000 Act to claim compensation.
  • A cumulo feuduty is one which affects two or more properties in separate ownership. This is where the superior feued (i.e. sold) off land, placing a feu duty. Subsequently, the vassal divided up the land, selling parts of it off to different people. This splitting up of the land would not remove any of the superior's rights. In respect of the feu duty, there are 2 possibilities:

    (a) the vassal might formally allocate the feu duty amongst the fragmented parts, so that each vassal would be responsible for a share. In such a case, schedule 2 could be used to claim compensation from each vassal separately.
    (b) there was no allocation of the feu duty to each sold off part by the vassal. As a result, the feuduty forms an unallocated cumulo affecting the whole feu. At present, the superior would be entitled to recover the whole amount of the feu duty from one vassal, leaving that vassal to recover a rateable share from the others. For claiming compensation under the 2000 Act, a superior seeking compensation should send a notice in the form of schedule 1 to each vassal. This would set out each owner, and the compensatory payment expected from each of them. Each sum would be a share in such proportion " as are reasonable in all the circumstances" (section 9(3)). An allocation would be presumed to be reasonable if it accorded with an existing apportionment (section 9(4)). Each vassal would only be liable for the share allocated to them.

    Note: associations may wish to consider the situation where a superior sells land to a housing association (or its predecessor), setting a feu duty over the whole land. The association is in this case the vassal, and splits the land off, selling plots off as individual homes. If the feu duty has been allocated amongst each property then the procedure outlined in paragraph (a) above would apply. If the association did not, then the cumulo situation in paragraph (b) would occur. In neither case would the association have to claim compensation, as this would be for the superior - the original seller of the land. The superior might however, request payment from the association in respect of units that it still owned.

3. Superior calculates the compensation payment due, using the formula in section 9(1) of the 2000 Act.

4. Superior sends the notice requesting compensation to the vassal. This will be in the form set out in either schedule 1 or schedule 2 of the Act, depending on whether the feu duty is cumulo or ordinary. Where the compensatory payment is 50 or more the superior should also enclose a filled out instalment document in the form set out in schedule 3 of the Act, together with 'Form A' as set out in schedule 4. The notice must be served within the two years after the appointed day on 28 November 2004, or any right to compensation will be lost. It will not be possible to collect feuduty after 27 November 2004.

Service

Liability to pay depends on service of a notice; and once a notice is served, the date of service is the starting point both for the 8-week period allowed for payment (or return of the instalment document). Although the date of service must be certain, the method by which service is achieved is fairly flexible. Service may be affected by delivery or by registered post or recorded delivery letter. Delivery might include handing the documents personally to the former vassal, or putting them through the letter box. If post is used, the notice should be posted to the former vassal's home, place of business or ordinary postal address (or to the most recently known such address).

The date of service of a notice is the day of delivering or posting the notice to the former vassal in accordance with the relevant rules. Unless the vassal is paying by instalments they must pay the compensatory payment within eight weeks of the notice being served.

Compensation

If the amount of the compensation requested is 50 or more the former vassal may choose to pay the sum due by instalments. This is done by signing, dating and returning, within eight weeks, the instalment document, which should have been sent to the former vassal by the superior. A form of this document is set out in schedule 3 of the Act. If, after having received the instalment document, the former vassal sells or transfers for valuable consideration the property or any part of it, they will lose the option of paying by instalments.

Compensation is payable by the person who was vassal immediately prior to feudal abolition. If the notice has been sent to the wrong person, (e.g. someone who was the vassal, but sold the property before 28 November 2004) then no payment will be due from them; but they will nevertheless have to provide the person who sent the notice, if they can, with such information as they have which might enable them to identify the person who should have received the notice instead. Where a notice is delivered or posted to the wrong person or to the wrong address it will have to be served again. There is no reason why a notice cannot be re-served on a number of different occasions provided the two year time limit has not expired.

The compensation due by the vassal is an ordinary, unsecured debt, payment of which could be pursued in the courts. An obligation to pay compensation will prescribe after five years from the date of service under negative prescription.

Schedule 4 provides 2 forms used for the purposes of evidencing the notice of the claim. Neither of these forms is mandatory, but they are intended to resolve arguments over service. It is intended that a superior will send Form A to a vassal, inviting them to fill it in and return it. This would then provide evidence of due service. If the vassal failed to return Form A, the superior might opt to fill in Form B themselves. If the completed Form B is accompanied by documentary evidence of posting, it will be sufficient evidence of due service where service is by recorded delivery or registered post.

Feu Duty Compensation Process

Flowchart