There are important differences between Scotland and England in relation to underlying property law, the procedures followed and also the terminology used.
Some points to note:
- Scots property law underwent major reforms including the abolition of the feudal system in 2004
- Outright ownership loosely equivalent to freehold is known as ‘heritable title’
- Contract is established by a series of solicitors’ letters known as ‘missives’
- No second stage equivalent to exchange of contract
- Binding contract is reached on acceptance of all points in a missive letter
Purchase and sale transactions
- Contract is contained within the missives - no National Conditions of Sal
- Full purchase price will usually be paid at completion - no deposit paid prior to that unless otherwise agreed
- No equivalent of Landlord and Tenant Acts – parties can generally contract as they see fit
- Ordinarily no right to renew beyond period of lease
- Failure to notify termination on time may result in continuation for up to one year
- No privity of contract – outgoing tenants released from liability
- Sub tenancy dependent on continuation of head lease
In Scotland, the contracts for both purchase and sale and lease transactions take the form of an exchange of formal letters between the parties’ solicitors (it is extremely rare for the principal parties to sign their own missives and this will almost always be done on their behalf by their solicitors). Where drafts are not used, an offer is issued containing all of the terms of the purchase (or less commonly the sale). This will usually then be met by a qualified acceptance (basically, a counter offer) agreeing the terms which are acceptable and proposing alternatives to those which are not. Further qualified acceptances are issued until no outstanding points remain, at which point, there is a legally binding contract. It is possible for this to happen at a relatively early stage and, in theory at least, all of the terms of the original offer could be accepted resulting in a concluded contract by return. In practice this never happens as the offer will invariably contain warranties and conditions which are initially unacceptable to the purchaser and/or its funder. The satisfaction of the conditions or renegotiation of their terms performs the same function as pre-contract enquiries. In most commercial transactions, the initial offer is issued in draft and the negotiation which follows normally takes place through the adjustment of the draft as opposed to a formal exchange of qualifying letters, as described. Once the draft has been agreed, this will be issued in principal and a formal acceptance letter given in exchange.
Missive letters may also contain suspensive conditions. These are conditions which, if not satisfied, may allow for automatic termination of the contract or for either of the parties to withdraw from the contract prior to the sale. Common examples are adverse surveys being obtained or refusal of a planning application. However, the contract is concluded and binding until such a condition fails to be satisfied or a party withdraws.
The missive letters do not require to be signed by the parties themselves and a binding contract is reached when the missive letters are issued and signed by the parties’ solicitors on their behalf. Additionally, including the words “subject to contract” in a letter do not prevent a letter being treated as part of a contract. It must be stated clearly that the letter is not contractual in effect if that is the effect desired (for example during informal negotiations or when discussing heads of terms).
Purchase and sale
In Scotland, the payment of a deposit in a contract of purchase and sale is rare. Unless the contract provides otherwise, the full purchase price will be payable on completion.
National Conditions of Sale
Although there are various regional sets of conditions which are optional and can be used in residential transactions, there is no equivalent to the National Conditions of Sale. The contract is contained entirely within the missives. As a result every contract is different and depends on the specifics of the transaction.
Landlord and Tenant Acts
In England, the Landlord and Tenant Acts cover a number of aspects of commercial leases and tenant’s rights. In Scotland, there is no equivalent legislation and the law is very different in some areas.
Generally, in Scots law, there is no security of tenure beyond the period of the lease contained in the contract with the exception of certain limited rights in relation to the tenants of retail premises. If timeous notification of termination is not given by either the landlord or the tenant the lease continues by a process known as ‘tacit relocation’ for a further period of up to one year on generally the same terms. This process continues from year to year until proper notice is given.
At the end of the lease the tenant is not entitled to compensation for any improvements made to the property, unless there is specific contractual provision to this effect which is very unusual.
Where a lease provides that landlord’s consent or approval is required unless otherwise provided it is probably the case that the landlord has absolute discretion as to whether he will grant or withhold consent or approval.
Historically, in Scotland, if a lease contained an irritancy clause (“forfeiture” or “re-entry” in England) and if that clause provided no opportunity to the tenant to remedy the situation it was for the landlord alone to decide whether or not to exercise the right to terminate the lease on breach. Legislation introduced in 1985 gave the tenant of every lease some statutory relief from irritancy. In the case of monetary breaches a tenant has 14 days (or a longer period provided under the lease) from the service of a notice by the landlord before the landlord is entitled to irritate the lease. In other cases the landlord is not entitled to irritate following a breach if, in all the circumstances, a “fair and reasonable landlord” would not do so. It is not possible to contract out of these protections.
In Scotland where a tenant assigns its interest in a lease the assignee takes its place and becomes the tenant, and the original tenant has no responsibility to the landlord after the date of assignation. Traditionally in England the first tenant will continue to have a contingent liability to the landlord during the whole period of the lease. It is perhaps for this reason that the courts in Scotland have tended to interpret alienation provisions in Scottish leases more strictly than in England.
In England a sub-tenant may acquire rights against the head landlord giving the sub-tenant security of tenure. This is not so in Scotland where the sub-tenancy is dependant on the continuance of the head lease. Although the sub-tenant may have a real right which will survive the principal tenant abandoning or agreeing to renounce its lease, if the head lease is irritated or comes to an end as a result of the exercising of a power contained in the lease, the sub-lease falls with it. Also, in Scotland, it is not necessary for the sub-lease to be for a shorter period than the head lease.
Under Scots law, if the property let by the lease is destroyed, the lease automatically terminates. This would possibly be the case even if the property was only partly damaged but the damage was sufficient to render the property useless. The lease will usually contract out of this.
In the repairing clause the word “repair” seems to be construed differently. Under English law we understand this word might extent to renewal, rebuilding, or reinstatement even if this meant that the tenant was obliged to remedy inherent defects in the building. It is thought that in Scotland “repair” is restricted to day to day maintenance unless the lease provides to the contrary. In Scotland, the common law also obliges the Landlord to put the premises into good and tenantable condition and keep them wind and watertight. The common law applies unless the lease make provision to the contrary. Consequently, a landlord will try to make it clear that the tenant accepts the premises as being in good and tenantable condition. This does not always sit easily with the English law issues of latent and/or inherent defects.
Under Scots law generally there is no reluctance to enforce positive obligations, such as “keep open” clauses. Damages are only an alternate remedy.
Where damages are sought by a landlord an award is not necessarily limited to a maximum of the loss in value to the landlord, the test is what losses are reasonably foreseeable.
There are restrictions on the period of leases under Scots law. These cannot be granted for a period of more than 175 years, 20 years for a residential lease.
Whereas, in England, there are 4 types of security, in Scotland, there are six basic forms of security: a standard security; a pledge; an assignation in security; a floating charge; a lien and a hypothec (though lien and hypothec are rarely used). In Scotland the floating charge is a creature of statute, and a Scottish company may grant a floating charge over all or any part of its property and undertaking by virtue of the Companies Acts.
Registration of charges
In England, charges are registered at Companies House before being registered at the Land Registry. In Scotland, standard securities must first be registered in the Land Register or Register of Sasines. A floating charge granted by a company registered in Scotland, as in England, must be registered with Companies House. However, where a floating charge is altered by virtue of an inter-creditor agreement, the terms of the alteration require to be registered in respect of a Scottish company only.
Until 1979, all land transfers were registered in a public deeds register called the General Register of Sasines. Since 1979, land transfers are now registered in the Land Register of Scotland. Generally the Scottish system is considered simpler than the English one. The Land Registers of Scotland are a Government Agency responsible for Scotland's land and property registers. The Books of Council and Session acts as an ancillary to these allowing documents such as leases to be registered for preservation largely.
In Scotland, it is generally possible to obtain duplicate copies of the documents from the Land Register, Sasine Register or Books of Council and Session. As a result, safe storage of deeds is generally less important than in England where fewer documents are registered.
Glossary of Scottish Terms
Term- Meaning/equivalent English term
Heritable title-Outright ownership similar to Freehold
Title conditions-General term for conditions over land including Real burdens and Servitudes.
Real right- A right which is exercisable against every other person notably extending to successors in title.
Law of the tenement - Law dealing with flatted properties - different from but similar to Commonhold. (The law of the tenement can apply to commercial properties)
Servitudes - A right to use neighbouring land similar to Easements. (However, following the land reform legislation in 2004, these can no longer be used to prevent use of neighbouring land).
Real burdens - These are similar to Freehold covenants. A real burden may be an obligation preventing use of the burdened property (e.g. not to build) or an obligation to do something positive (e.g. to maintain a wall).
Missives - Series of letters between parties leading to a binding contract
Tacit relocation - Method by which a lease continues at the end of its term if not terminated timeously.
Right in security - Mortgage