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Draft Title Conditions (Scotland) Bill Consultation Paper

Chapter 11 - Title Conditions and the Abolition of Feudal Tenure Act

142. As the foreword to this Consultation Paper explains, the Title Conditions Bill is part of a programme of property law reform. The first part was the Abolition of Feudal Tenure etc. (Scotland) Act which was passed by the Scottish Parliament in 2000. That Act is referred to in this Paper as the 2000 Act. It is published by The Stationery Office and may be found on their website at: http://www.hmso.gov.uk/legislation/scotland/acts2000/20000005.htm

143. There is a close relationship between the 2000 Act and this Bill, and the intention is that this Bill will be commenced at the same time as the remaining parts of the 2000 Act. When the 2000 Act is completely commenced the feudal system will be abolished. Although the purpose of the 2000 Act was to abolish the feudal system, it recognised that some feudal burdens were valuable. It therefore allowed certain feudal burdens to be preserved, so that they would then be treated like ordinary real burdens, under the law as reformed by the Title Conditions Bill. The provisions on feudal burdens can be found in Part 4 of the 2000 Act.

144. During the passage of the 2000 Act, the Executive made it clear that Part 4 of the Act would not be commenced until after the Title Conditions Bill had been enacted. It had become clear that the Title Conditions Bill might affect the 2000 Act. The Executive wished to look at the relationship between the two pieces of legislation. The Executive also undertook to look again at certain aspects of Part 4 which were criticised during the passage of the 2000 Act.

145. This Chapter deals with the impact of the Title Conditions Bill on the 2000 Act.

146. The introduction to this Paper contains a brief explanation of some technical terms. It may be helpful here to give some definitions of feudal terms. Under the feudal system, the benefited proprietor is known as the feudal superior. He owns an interest in land called a superiority. The superiority is the benefited property. The burdened proprietor is the vassal. In feudal tenure, a superior's interest to enforce a burden was presumed. But the 2000 Act changed that. It removed the presumption in favour of the superior. In future a former superior will be on the same footing as any other owner of benefited land.

The 100 metre rule

147. The 2000 Act allows superiors to save enforcement rights for some burdens which are beneficial to their land. One category that can be saved is the neighbour burden. If the superior owns neighbouring land he may be able to save the burden provided that certain conditions are fulfilled. In particular, the superior would have to have, on his own land, a building used for human habitation or resort (normally a house), and that house would have to be within 100 metres of the burdened property. This is the 100 metre rule. If the 100 metre rule is satisfied, the superior has an automatic right to save his burden. All he has to do is to serve a notice on the vassal and register it in the property registers.

148. The rule is not absolute. Even if the superior's land does not meet the conditions set out above, he can still preserve his right to enforce a burden if the vassal agrees (section 19 of the Act). If the vassal does not agree, the superior has a last chance to save his enforcement right by applying to the Lands Tribunal under section 20, where he has to prove that he would suffer substantial loss or disadvantage from the loss of the right.

149. The main argument in favour of the 100 metre rule is that it provides an easily understood criterion for saving burdens which protect the amenity of a neighbouring property. Many superiors are absentees, or live at a distance from the burdened land, but they are still able to enforce burdens. They are sometimes able, particularly in rural areas, to stifle development. This is one of the reasons why the feudal system has been greatly criticised. But some superiors live locally. A superior may well have sold off land near to his own home - possibly even a part of his garden. He might quite reasonably have wanted to place a condition on the sale - possibly to prevent his view being blocked. It was generally accepted by the Law Commission, by the Executive and by Parliament that superiors in this position should not lose the right to protect their interests.

150. But the question was how to achieve this while at the same time not allowing all feudal burdens to be saved, even those where the superior's land is a considerable distance away. The advantage of the 100 metre rule is that it restricts superiors' rights to save burdens, while at the same time allowing essential amenity of buildings in use to be protected. 100 metres may be enough to protect the amenity of most houses, but any figure is bound to be arbitrary. The additional provisions of sections 19 and 20 mean, however, that if a superior genuinely feels that 100 metres is not enough to protect his amenity, he can still go to court to try to save his right to enforce the burden. The sections as a whole therefore provide a balanced approach.

151. Considerable concerns were, however, raised about the 100 metre rule during the Parliamentary stages of the 2000 Act. One main concern was that the 100 metre distance was too short in rural areas; and that it was unfair to have the same distance requirement for rural and urban areas. The Executive readily understood these arguments, and could accept that in an urban context 100 metres would probably be more than enough to protect the amenity of a house, whereas in the country, where buildings are more scattered, it might not.

152. There was also some criticism of the need for there to be a house on the benefited land. Many existing burdens are placed to protect open land rather than a house. They can be important, particularly if the land is agricultural or used for the leisure industry. One example which was cited was a burden which prohibited the keeping of more than one dog. The purpose of this burden was to protect the farmer's livestock. It was not his house which was in need of protection, but his fields.

153. The Executive agreed to consider possible alternatives and to cover this matter in the consultation exercise on Title Conditions.

154. Amongst the alternatives which the Executive considered were developing definitions for urban and rural which would work in the context of property law, altering the 100 metre figure so that the distance would be greater, and abolishing the need for there to be a house on the benefited land. It also considered the possibility of creating a new category of feudal burdens - 'agricultural burdens' - which could be preserved. In the event, however, the Executive did not consider that any of these alternatives would provide a complete answer to the criticisms which had been made.

155. A change to provide a different distance limit for urban and rural land would address the difficulties posed by the greater distances between buildings in rural areas but would not address the issue of open land in either context. Open land in an urban setting - for instance a golf course - might also be in need of protection. Similarly, merely increasing the 100 metre figure would not help in a rural case where it was the land, rather than a house, which needed to be protected. But to increase it to a greater distance might mean that the effectiveness of the rule (in saving only burdens which give genuine benefit) would be reduced. Abolishing the need for there to be a house would address concerns about the need to protect open land but might allow many more rural burdens to be saved, as often in rural areas the superior's land will at some point be near or adjacent to the burdened property. The creation of agricultural burdens would help livestock and agricultural businesses, but would pose serious difficulties of definition. It would be likely to provoke disputes over whether or not a burden was designed for agricultural purposes.

156. One possible solution which the Executive has considered is to drop the 100 metre rule completely. This would mean removing the 100 metre rule from section 18 and the consequential repeal of sections 19 and 20 of the 2000 Act. Former superiors would still have to register notices by the appointed day to preserve burdens. Removing the 100 metre rule would solve all of the criticisms raised in the passage of the 2000 Act. Rural and urban situations would be treated in the same way, and former superiors would be able to preserve valuable burdens such as those which protect agricultural land.

157. The disadvantage of this potential change, however, is that it might make it possible for remote superiors to save more burdens in rural areas. The 100 metre rule is designed to act as a filter to avoid superiors indiscriminately registering notices. It is not clear how they would react without such a filtering mechanism. Superiors might be tempted to register notices to perpetuate existing burdens without giving careful consideration as to whether the burdens are of genuine benefit to nearby land.

158. There would be no reasonable point in attempting to save a burden where there was no interest to enforce. While at present, a superior's interest to enforce a burden is presumed, section 24 of the 2000 Act makes it clear that in future a former superior will have to demonstrate interest to enforce a burden. It is to be expected that superiors will only take the trouble and expense of saving burdens which are of real benefit to their land. But it is possible that without the 100 metre rule some superiors might issue notices indiscriminately in the hope that their interest to enforce the burden would not be challenged by their vassals. That is the risk of removing the 100 metre rule.

159. The Scottish Law Commission has now brought forward proposals for the treatment of non-feudal neighbour burdens. These are discussed in Chapter 4 of this Consultation Paper. In brief, the owner of property which benefits from a non-feudal neighbour burden will have to register a notice in the property registers to save his right to enforce the burden, and he will have 10 years to do so. But he will not have to meet any special criteria. In particular there is no distance limit proposal like the 100 metre rule. Nor is there any requirement that there should be a house or similar on the benefited land.

160. On the issue of this different treatment, the Commission observe that feudal and ordinary neighbour burdens are legally distinct. In the case of ordinary burdens, the purpose of the notice is to identify the neighbouring land which is already the benefited property. In the case of a feudal burden the benefited property is a superiority rather than the neighbouring land and the purpose of the notice is to transfer the entitlement to enforce the burdens from the superiority to the neighbouring land. Only in the feudal case is the actual benefited property changing.

The Executive considers that in the overall context of the abolition of the feudal system the different treatment of feudal and non-feudal burdens is reasonable and justifiable.

Lands Tribunal criterion

161. Paragraph 148 explains that a feudal superior who goes to the Lands Tribunal to attempt to save his enforcement rights to a burden will have to prove that he would suffer substantial loss or disadvantage from the loss of the right. The Executive believes that it would be simpler for the Tribunal and for all parties if this were altered so that the criterion matched the definition of interest to enforce which is set out in section 7(3) of the Title Conditions Bill, and discussed in Paragraph 42 of this Paper.

Sporting rights

162. Sporting rights were a feature of feudal tenure. When a feudal superior sold land, he would sometimes reserve the right to shoot or fish on that land. Section 18(7)(b)(i) of the 2000 Act allows superiors to preserve sporting rights as real burdens. Section 77 of the draft Title Conditions Bill converts them into positive servitudes on the appointed day.

Development value burdens

163. Another aspect of the 2000 Act on which the Executive has received representations is development value burdens.

164. A development value burden is a special category of real burden that has been imposed in exchange for a reduced purchase price. The understanding is that if the land is used for a different purpose from that specified in the deed, a further financial payment will be due for any increase in value caused by it no longer being subject to the use restriction. Examples of development value burdens are:

• A plot of land sold for very little on condition that it was used for a community hall, or a sports field.
• A local authority may have sold land cheaply to be used as gardens or for recreational purposes, but would not want that land to be used for any other purpose which might reduce the amenity of surrounding land (even though the authority did not itself own the surrounding land).

165. The Commission considered whether former superiors should be allowed to save burdens of this type, in perpetuity or for 20 years. They dismissed this idea, however, on the grounds that these burdens are not really intended to protect the amenity of land: they exist because of financial arrangements made at the time of their creation, for which it would be possible to allow compensation. Accordingly, section 33 of the 2000 Act provided that the beneficiary of the burden would be able to register a right to be compensated if it was breached in the five years preceding or the 20 years following the appointed day. The compensation was capped at the difference in value of the land with the burden and without the burden at the time of sale.

166. As for the future, if someone wished to make a charitable bequest of land, he would be able to do so by setting up a trust. For situations involving local authorities, the Commission pointed to the use of planning legislation, but did not express a view as to whether further powers were needed. The Commission stressed that burdens should provide a benefit to land and that a mere personal interest unconnected to a benefited property was not a sufficient ground to keep development value burdens. The public interest that justified the preservation of conservation and maritime burdens (despite their lack of a benefited property) was absent.

Clawback

167. An additional type of condition is frequently used by both public and commercial bodies where land is sold either at less than its market value or at market value but with an expectation that its value will be enhanced by the purchaser. This is where land might, for example, be sold to a developer at rates applicable to open agricultural land but envisaging that the developer may subsequently receive planning permission to build a housing estate. A condition might be placed at the time of sale so that the seller could share a part of the increase in value. This is termed a clawback condition. Such agreements are often limited in duration to around ten years. The selling price is not necessarily lower than the current market value. In contrast to development value burdens, the seller does not desire to restrict use, but wishes the event to occur that will trigger the additional payment.

168. Clawback transactions are complex and varied, but they regularly include two features. The primary one is a standard security in favour of the seller, which provides that if a certain event occurs (such as planning permission for change of use) he will get a further financial payment. The second is a feudal real burden, which restricts the use of the site. If the use changed, the burden would come into play, and because a feudal burden was often backed up by a right of irritancy (re-possession of the site if the burden was breached) it was a very powerful weapon. The mere threat of irritancy would be enough to ensure that the original seller got his money. Even without the threat of irritancy, the seller would be able to take legal action if the burden was breached.

169. Section 53 of the 2000 Act abolished irritancy rights. That section has already been commenced. The Act also provided that it would no longer be possible to create feudal real burdens. All future burdens will therefore be non-feudal. They will generally require a benefited property. The question is whether there is a continuing place for the real burden in clawback transactions, and if so, whether that would justify the creation of a new category of burden which does not require benefited land. Should it be possible in future to draw up commercial land transactions, which would involve a real burden restricting use?

170. The Commission take the view that clawback arrangements are commercial transactions protecting a financial investment. The purpose of real burdens, however, is to protect land. Real burdens may have been used as a device to assist the completion of a deal, but they are not appropriate for that purpose. The Commission also believe that they are not an efficient means of protecting the investment as the burden can always be varied or discharged by the Lands Tribunal. They give as an example a case where the seller was awarded as compensation less than a third of the sum provided for in the clawback agreement.

171. The Commission therefore argue that if there are problems with clawback agreements the solution should lie, not in the use of real burdens, but in addressing directly any inadequacies in the other parts of clawback arrangements, particularly the use of standard securities. They identify section 13 of the Conveyancing and Feudal Reform (Scotland) Act 1970 as the main problem. Commercial developments are regularly funded by staged borrowing: the developer will borrow money as he requires it to fund the ongoing development. As he borrows the various sums that he needs over time, he will grant his creditors standard securities on the property. The various standard securities are ranked chronologically unless otherwise agreed. The original seller (holding the first registered security in respect of the clawback arrangement) will be at the start of this chain. It is possible that when a later creditor gives notice under section 13, the result is that his debt gains precedence over the possible claim to be made by the seller. This is because the Act stipulates that security holders will only be ranked in respect of 'advances' made before subsequent securities. As in the case of a clawback there are no 'advances' involved, the right to the clawback would only become due after subsequent securities, by which point the equity may be exhausted.

172. The Commission have therefore proposed a simple amendment to section 13 (substitution of 'debt' for 'advances'). The effect of this would be to clarify section 13 and to ensure that the original seller would receive protection for his investment.

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