In this alert we look back at 2019 and pick out a legal highlight, from each month, that impacts on Scottish real estate. If you are also interested in legal developments in England and Wales, please click here.

January 2019 – expert determination

In January 2019, two separate Scottish cases (Ashtead Plant Hire Company Limited v. Granton Central Developments Limited [2019] CSOH 7 and Cine-UK Limited v. Union Square Developments Limited [2019] CSOH 3) came before the Court of Session on the issue of whether – and, if so, under what circumstances – a lease can make rent review disputes the exclusive jurisdiction of an independent expert. It is clear from the cases that courts will not readily conclude that their jurisdiction has been ousted by a contractual provision providing for expert determination. If parties to a lease wish to confer exclusive jurisdiction on an independent expert, particularly on matters of law, this should be clearly and explicitly stated in the lease.

Link to our article on expert determination.

February 2019 – Brexit not enough to frustrate a lease

In February 2019, the English High Court handed down its decision in Canary Wharf Limited v. European Medicines Agency [2019] EWHC 335 (Ch) confirming that Brexit did not frustrate the lease in question (i.e. did not bring the lease to a premature end). The case is likely to grow in significance now that it seems almost inevitable that the UK will leave the EU at the end of this month. The decision provides some reassurance to landlords that it would be very difficult for tenants, particularly those with leases that permit alienation, to argue that Brexit will have the effect of frustrating their leases. The principle of frustration also applies to Scottish leases, so it is hoped that the English decision would be followed here. As for the effect of Brexit on commercial real estate in 2020 – the impact will be felt more in terms of the reaction of the market, rather than significant legal changes to underlying property law, which is largely domestic in origin.

March 2019 – reform of Scottish business rates

The Non-Domestic Rates (Scotland) Bill was introduced to the Scottish Parliament in March 2019. It will implement many of the recommendations of the 2017 Barclay Review of Scottish Non-Domestic Rates. Some of the main proposed changes are: moving to a three-yearly revaluation cycle; delaying rates increases by 12 months where an existing property is expanded or improved, and where a newly built property becomes occupied; modernising the appeal system; and removing charitable rates relief from mainstream independent schools. The Bill is continuing its passage through the Scottish parliamentary process to become law.

April 2019 – new UK service charge code

The new commercial service charge code professional statement (Code) produced by the Royal Institute of Chartered Surveyors (RICS) became effective on 1 April 2019. The Code contains certain mandatory requirements for regulated firms and RICS members. It also sets out 24 core principles, numerous best practice guidelines and guidance on service charge handover in the event of a sale. While the Code cannot override the terms of existing leases, RICS advises that if existing leases are read in conjunction with the Code, this should enable users to identify the best way forward in interpreting a lease to ensure effective management of services. The professional statement is applicable across the UK, although it contains some different conditions for Scotland.

May 2019 – Scottish gratuitous alienations/sales at undervalue

In May 2019, the UK Supreme Court heard the Scottish case of MacDonald and another as joint liquidators of Grampian MacLennan's Distribution Services Ltd v. Carnbroe Estates Ltd [2019] UKSC 57. The case involves insolvency and "gratuitous alienations" (sales at undervalue). The Supreme Court's decision was issued on 4 December 2019 and includes two important elements. Firstly, the decision clarifies the test for "adequate consideration" under the insolvency rules. Secondly, it represents an important departure from previous Scottish authority in recognising that the court does have the necessary flexibility to deal with a transaction (found to be a gratuitous alienation) in a way that balances the respective interests of the purchaser and the creditors of the insolvent company.

June 2019 – Scottish Law Commission consultation on heritable securities

In June 2019 the Scottish Law Commission (SLC) published a discussion paper on pre-default aspects of heritable securities. A "heritable security" is a security over Scottish land, buildings and/or rights in land – in common parlance, a mortgage. It is usually granted by a borrower to a lender to secure a loan and entitles the lender to appropriate the borrower's property if the borrower defaults in repaying the loan. The legislation that currently governs heritable securities is generally viewed as being overly complex and outdated, with some elements that operate unfairly or are technically problematic. A consultation on the discussion paper ran until September 2019 and responses are now being compiled and considered by the SLC. In due course, a report giving the SLC's recommendations for reform will be produced. The SLC also intends to publish a separate discussion paper on ranking and enforcement aspects of heritable securities.

July 2019 – Scottish Government consultation on short-term residential lets

In July 2019, the Scottish Government closed its consultation on the regulation of short-term lets in Scotland. In order to tackle the problems caused by the proliferation of short-term residential lets (such as Airbnb properties) in Scotland, the Scottish Government proposes to introduce a national regulatory framework, to allow councils to establish regimes appropriate for local needs. The majority of respondents to the consultation supported regulation, although opinions were divided as to the form which regulation should take. Some favoured a scheme of registration of short-term lets, while others preferred a licensing regime. The Scottish Government's other suggestion of using market-based mechanisms (such as a charge and/or potential changes to relevant taxes and reliefs) received little support. Many respondents called for a flexible approach, to enable the balancing of the needs of local communities with the financial benefits of short-term lets to tourism and the local economy.

August 2019 – transparency of ownership

In August 2019, we reported on the UK government's response to the House of Commons and House of Lords Joint Committee's report on the draft Registration of Overseas Entities Bill. The draft Bill sets out a legal framework for establishing a public register of the beneficial ownership of overseas entities that have interests in land in the UK. This will be a significant change for overseas entities that have invested, or are intending to invest, in UK real estate. The UK government remains committed to pursuing the register, although it remains to be seen whether it will achieve its original plan of launching the register in 2021.

In addition, the Scottish Parliament is progressing with its plans to introduce, in April 2021, a new Scottish Register of Persons Holding a Controlled Interests in Land. Updated regulations establishing the new Scottish register are expected to be produced early this year.

Link to our article on identifying decision-makers behind land ownership in Scotland.

September 2019 – electronic signatures

In September 2019 the Law Commission of England and Wales issued a report on the use of electronic signatures, although registrable real estate transactions were excluded from the ambit of the report. The position in England and Wales remains that electronically signed deeds purporting to effect registrable dispositions cannot be registered. The report does not extend to Scotland. For Scottish real estate transactions (much like in England), electronically signed documents cannot, subject to a couple of specific exceptions, currently be registered with Registers of Scotland. The hope is that this will change in the near future, as Registers of Scotland (and in England and Wales, the Land Registry) push on with their own digitisation programmes.

Link to our article on electronic signatures for UK real estate transactions.

October 2019 – notices to quit for Scottish commercial leases

In Scotland, a commercial lease will generally only come to an end on its contractual expiry date if either the landlord or the tenant gives a valid "notice to quit" to the other party within a specific time period prior to the lease expiry date. If this is not done, "tacit relocation" will operate to continue the lease on the same terms for a further period (usually one year), unless the parties agree otherwise. The usual common law notice period is 40 days. However, for many years, there has been confusion over whether certain periods of notice set out in the Sheriff Courts (Scotland) Act 1907 (a) displace the common law notice period or (b) only apply if a landlord is using a particular expedited court procedure for removing tenants from premises at the end of a lease. In October 2019 in the case of M7 Real Estate Investments Partners VI Industrial Propco Ltd v. Amazon UK Services Ltd [2019] CSOH 73, the Outer House of the Court of Session confirmed that the 1907 Act notice periods need only be complied with if the landlord wished to use the expedited removings procedure.

November 2019 – Planning (Scotland) Act 2019

The Planning (Scotland) Act 2019 was passed into law in June 2019. It makes wide-ranging reforms to the Scottish planning system. The Act is being brought into effect in phases, per a Scottish Government implementation timescale that started in November 2019. The intention is that most of the Act will be implemented by early 2021. Some of the key aims of the Act are to: improve the system of development plans; increase opportunities for community engagement in planning; ensure the effective performance of planning authorities’ functions; and introduce a new way to fund infrastructure development. Separately, the Scottish Government is consulting on substantially reviewing and extending the Scottish permitted development rights regime.

December 2019 – more decisions on the Electronic Communications Code (ECC)

Throughout 2019 we saw numerous cases on the ECC, which reached its second anniversary in December 2019. The cases have all been English, but are generally also relevant north of the border, as the ECC applies UK-wide. One such case was Cornerstone Telecommunications Infrastructure Limited v. Compton Beauchamp Estates Limited [2019] EWCA Civ 1755, which clarified that only occupiers of land can confer rights pursuant to the ECC and, further, that operators in situ cannot confer ECC rights on themselves. As the demand for better electronic communications infrastructure grows, we can expect to see yet more cases on the ECC as we progress through 2020.

Looking ahead to 2020

Later this month Dentons will be hosting its annual predictions events in London and Glasgow, at which industry experts will be discussing (among other things) the key themes they anticipate will grab the headlines in 2020 and the asset classes to watch over the next twelve months. Shortly thereafter, we will be issuing our annual predictions video and accompanying report.