Out-Law Guide | 28 Oct 2013 | 7:29 am | 3 min. read
A version of this guide first appeared in Estates Gazette. Last updated on 8 May 2018.
Long leases are relatively rare in Scotland and the Scottish Government estimated that about 9000 leases were affected.
The Long Leases (Scotland) Act 2012 automatically converted the tenant's interest under certain long leases in Scotland to outright ownership on 28 November 2015. This legislation was part of the Scottish Government's programme of modernisation of land law in Scotland which included the abolition of the feudal system in 2004.
The use of long leases
In contrast to England and Wales, long leases have never been popular in Scotland. There are two principal reasons for this:
The 2012 Act complements previous legislation which served to prevent a quasi-feudal structure being created by means of long leases. In 1974, legislation restricted the maximum length of newly created residential leases to 20 years, with further legislation in 2000 restricting the maximum length of newly created commercial leases to 175 years.
The 2012 Act operated to abolish those remaining historic long leases which the Scottish Government considered granted a tenant a right more akin to ownership than the right of a tenant under a lease. The result is that the landlord has no further interest in the property and the tenant became the owner.
Qualifying Leases under the Act
Certain conditions had to be met for a lease to qualify for conversion. A qualifying lease must:
There was concern that the legislation would inadvertently deliver a windfall to tenants who had been granted long leases for development purposes at a commercial rent. The ascension of the tenant to ownership would result in the deposed landlord (often a local authority) being deprived of a valuable asset it wished to retain. To address this, the legislation provided that for a lease to qualify for conversion the annual rent must not exceed £100.
Considerations for tenants
There was unfounded concern at the potential impact of the legislation on capital allowance tax treatment of Enterprise Zone schemes set up using long lease structures. Investors, who typically acquired a tenant's interest, could look to the provisions of the relevant tax legislation which gave comfort that the relevant interest (for tax purposes) converted from the tenant's interest to the owner's interest when the leasehold structure extinguished.
For further information on how the tenant's title to the property converted to ownership in the Land Register of Scotland see the Registers of Scotland website.