Act: Lake, Q.C.; Semple Fraser LLP

Alt: Connal, Q.C., Solicitor Advocate; McGrigors LLP

29 June 2011

Introduction

[1] By lease dated 3 and 10 December 1991 and registered in the Land Register on 9 January 1992 under Title No. REN69041, Paisley Developments Limited let to the Co-operative Wholesale Society Limited certain subjects forming part of the Paisley Centre, Paisley. As retail units at several levels of a shopping centre these were initially designated "Major Store A", "Major Store B" and "Major Store", and were to be occupied along with rights in adjacent Malls, Service Areas and other common parts. The lease was for a period of 125 years at a nominal rate of £1 per annum if asked only. The landlord's interest is now held by a Guernsey-based organisation, Propinvest Paisley LP ("the appellant") and the tenant's interest by the Co-operative Group Limited ("the respondent").

[2] In an application which came before the Lands Tribunal for Scotland in the course of 2010, the respondent sought orders for the discharge or variation of certain conditions of the lease in terms of section 90(1)(a) of the Title Conditions (Scotland) Act 2003. The company had, it was said, withdrawn from the department store business and now wished to dispose of their interest in the lease; in order to comply with the challenged conditions they had recently had to employ contractors to operate a department store within the subjects; and in such circumstances, having regard to the provisions of sections 98 and 100 of the Act, it would be reasonable for the relevant conditions to be discharged. The latter were all comprised within Clause SEVENTH of the lease, and (so far as material) read as follows:-

"The Tenant undertakes:-

(1) To use the Premises as a high quality retail departmental store or high quality retail outlets for the sale of such commodities and the provision of such services as are normally sold or provided by the Co-operative Wholesale Society Limited as part of the Centre and in such manner as enables shoppers to pass without let or hindrance between the Main Mall at Level 3, the Lower Mall at Level 1 and such other parts of the Centre as are open to the public at all times during which the Premises are open for business; The foregoing provisions relating to use being hereinafter referred to as 'the Permitted Use'.

(2) Not to use the Premises or any part thereof for any business other than the Permitted Use without the prior consent of the Landlord, which consent shall not be unreasonably withheld or delayed; Declaring that the Landlord shall be deemed to be acting reasonably in withholding consent for any change in the Permitted Use where such change would in the reasonable opinion of the Landlord acting in accordance with the principles of good estate management of a shopping centre conflict with the Landlord's policy of good estate management of a shopping centre and/or the Landlord's view of a good tenant mix for the Centre.

.....

(6) To keep the Premises open and trading during the shop opening hours of the Centre as defined in the Regulations ...

(7) To maintain active trade throughout substantially the whole of the Premises during the shop opening hours ....

(8) To keep the interior of the Premises where they are directly visible from the Main Mall at Level 3, Lower Mall at Levels 1 and 2 and from Causeyside Street attractively laid out and furnished with goods well displayed and to keep any display windows or showcases adequately and attractively dressed to the reasonable satisfaction of the Landlord ...".

[3] The respondent's application was opposed by the appellant who contended, not merely that it should be refused on its merits, but that the Tribunal had no jurisdiction to entertain it in the first place. A debate on this preliminary issue was heard before the Tribunal in July 2010, and on 17 September 2010 the Tribunal issued a ruling in the respondent's favour. Its interlocutor of even date was in the following terms:-

"The Lands Tribunal for Scotland, having heard Counsel for the parties and under reference to the Opinion of today's date, REJECT [Propinvest's] preliminary arguments relating to competency and relevancy; and CONTINUE the cause to a hearing on a date to be fixed".

It is against that interlocutor that the present appeal is taken by virtue of section 11 of the Tribunals and Inquiries Act 1992.

[4] Briefly stated, the disputed preliminary issue concerns the ambit of the Tribunal's statutory jurisdiction to discharge or vary "title conditions" contained in a registrable lease. The relevant power, and the grounds on which it may be exercised, are set out in sections 90, 98 and 100 of the 2003 Act and the term "title condition" is defined in section 122(1). For present purposes, the following provisions are of significance:-

"90(1) Subject to [certain other sections] of this Act ..., the Lands Tribunal may by order, on the application of -

(a) an owner of a burdened property or any other person against whom a title condition (or purported title condition) is enforceable (or bears to be enforceable) -

(i) discharge it, or vary it, in relation to that property; ...

.....

98 An application for the variation, discharge, renewal or preservation of a title condition shall ... be granted by the Lands Tribunal only if they are satisfied, having regard to the factors set out in section 100 of this Act, that -

(a) ... it is reasonable to grant the application; ....

.....

100 The factors mentioned in section 98 of this Act are -

(a) any change in circumstances since the title condition was created (including, without prejudice to that generality, any change in the character of the benefited property, of the burdened property or of the neighbourhood of the properties);

(b) the extent to which the condition -

(i) confers benefit on the benefited property; ....

(c) the extent to which the condition impedes enjoyment of the burdened property;

(d) if the condition is an obligation to do something, how -

(i) practicable; or

(ii) costly,

it is to comply with the condition;

(e) the length of time which has elapsed since the condition was created;

(f) the purpose of the title condition;

.....

(j) any other factor which the Lands Tribunal consider to be material.

.....

122(1) ... 'title condition' means -

(a) a real burden;

(b) a servitude;

.....

(d) a condition in a registrable lease if it is a condition which relates to the land (but not a condition which imposes either an obligation to pay rent or an obligation of relief relating to the payment of rent);

.....

(g) such other condition relating to land as the Scottish Ministers may, for the purposes of this paragraph, prescribe by order;"

[5] Before us the parties were agreed that, in substance although not precisely in form, the foregoing provisions of the 2003 Act were derived from the Conveyancing and Feudal Reform (Scotland) Act 1970 by which the jurisdiction of the Lands Tribunal for Scotland to discharge or vary "land obligations" was first conferred. The relevant provisions of the 1970 Act had on many occasions been considered and/or applied by the Tribunal and by the courts, and since there was no evidence of any Parliamentary intent to alter the nature and scope of the Tribunal's jurisdiction in 2003, following a Report by the Scottish Law Commission in which changes were identified in other areas, it was acknowledged that judicial decisions reached under the 1970 Act remained relevant and in point today.

The parties' competing submissions
[6] In short, the appellant's position was that the statutory jurisdiction to discharge or vary conditions contained within a registrable lease was not unlimited. Far from it: the definition in section 122(1)(d) extended only to such conditions as "relate[d] to the land". By analogy with the real burdens and servitudes mentioned in subparagraphs (a) and (b), this had to involve burdens and benefits of a praedial nature, that is, burdens and benefits affecting interests in land as such and not merely the commercial interests of individual parties. The paradigm example of a dischargeable "title condition" was a real burden, which section 1 of the 2003 Act defined as inter alia:

"...an encumbrance on land constituted in favour of the owner of other land in that person's capacity as owner of that other land".

This was consistent with the decision of the Inner House in Aberdeen Varieties Limited v James F Donald (Aberdeen Cinemas) Limited 1939 SC 788, where a purported attempt to create a real burden in the form of restrictions on the use of one theatre, devised for the commercial advantage of another situated half a mile away, was declared invalid. As Lord Wark explained at p.796:

"The whole basis of the recognition of the lawfulness of such restrictions upon the free use of property is the law of neighbourhood. Their imposition upon lands is only justified and recognised in so far as they are made for the protection of the amenity or comfortable enjoyment of other lands. The essential condition of their validity is that they are imposed for that purpose. If they are not, they are not, in my opinion, enforceable; at all events where, as here, there is no question of contract or of tenure".

Similar observations are to be found in the opinion of the Lord Justice Clerk (Aitchison) at pp.799-802, and in the opinion of Lord Jamieson at p.803.

[7] In the submission of senior counsel for the appellant, the juxtaposition of paragraph (a), (b) and (d) in the statutory definition of "title condition" called for a similar approach where the terms of a registrable lease were in issue. Here, however, none of the clauses covered by the respondent's application could be said to burden the tenanted subjects as such, or to enure for the benefit of any subjects owned by the landlord. On the contrary, such restrictions merely struck at commercial aspects of the landlord/tenant relationship, and must therefore be held to fall outwith the proper scope of the definition in section 122(1) of the Act. Unfortunately most, if not all, of the Tribunal's caselaw in this area proceeded on the basis of a concession or assumption that a "land obligation" or "title condition" was involved and that the relevant application thus fell to be resolved on its merits. In George T Fraser Limited v Aberdeen Harbour Board 1985 SC 127, however, the Inner House of the Court of Session had specifically addressed the competency of an application to discharge, not land use restrictions, but a clause prohibiting assignation of a lease without the landlord's consent. In holding that the Tribunal had no jurisdiction to discharge or vary a clause which governed the identity of parties, the court relied inter alia on the consideration that such a clause did not in any relevant sense "relate to the land". At p.133, the Lord President (Emslie) explained this ground of the court's decision as follows:-

"In any event I am clearly of opinion that even if there is embedded in a grant of lease excluding assignees and sub-tenants anything which could properly be described as an 'obligation' within the meaning of section 1(2) [of the 1970 Act], it is certainly not an obligation relating to land...... However wide the expression 'obligation relating to land' may be it is not, in my opinion, wide enough to permit interference by the Lands Tribunal with the terms of the operative words of the grant of a lease which are concerned to identify the persons who may enjoy the interests of the tenant in land during the currency of the lease".

[8] In the course of the hearing before us, and in response to questions from the Bench, senior counsel recognised that the Fraser decision arguably went much further in considering whether a clause which essentially defined the party to whom the subjects had been let could properly qualify as an "obligation" for the purposes of section 1 of the 1970 Act. In holding emphatically that it did not, the Lord President (in an earlier passage at p.133) discussed the matter in inter alia these terms:-

"The entire scheme of the section appears to rest upon the assumption that, rights having been granted, burdens upon these rights have been created. An application to the Lands Tribunal under section 1 may only be made by a 'burdened' proprietor and ....the use of the adjective 'burdened' appears to me to illustrate accurately the scheme of the section.....It is not for the Lands Tribunal to grant to an applicant new rights. Their jurisdiction is merely to vary or discharge burdens upon rights already granted. If the rights of a named tenant under a lease do not include the right to grant a valid assignation of his rights and interest in a lease to a third party it is absurd to say that he has come under a correlative obligation not to do so. He simply cannot do so however hard he may try....".

[9] This aspect of the Fraser decision was not, however, picked up by the Scottish Law Commission at para 6.29 of their 2000 Report on real burdens, nor was it apparently considered by the Tribunal in reaching their decision in the present case. The broad principle enunciated by the Lord President was not limited to the particular facts of that case where a prohibition against assignation was in issue: there was no obvious reason why, in appropriate circumstances, the same principle should not be applied to clauses definitional of the essential nature and extent of the grant itself. On this basis even Clause SEVENTH (1) and (2), which most closely resembled conditions restrictive of the use of land, might well be deemed to fall outwith the scope of the Tribunal's statutory jurisdiction. An obvious contrast could here be drawn with Clauses EIGHTH and NINTH of the lease, and indeed with certain other parts of Clause SEVENTH itself which were truly in the nature of burdens on the grant.

[10] One way or another, it was said, the Tribunal had erred in rejecting the appellant's challenge to their jurisdiction, and had moreover gone wrong in describing the issue before them as one of competency. If, however, the court was in any doubt as to the correctness of the decision complained of, an appropriate course might be to allow a proof before answer on all aspects of the respondent's application, including the question as to whether the respondent could relevantly bring itself within the proper scope of sections 90 and 122 of the 2003 Act.

[11] In a succinct response, the senior solicitor advocate for the respondent invited us to affirm the decision of the Tribunal and refuse the appeal. The Tribunal, he said, had been well entitled to reach the decision in question, and had correctly interpreted the proper scope of their own jurisdiction. As regards the necessary qualification that a "title condition" must "relate to the land", this was as plainly met in the present case as it had been met in several earlier cases where the statutory jurisdiction had come to be exercised on its merits. Reference was in this context made to McQuiban and Another v Eagle Star Insurance Company 1972 SLT (Lands Tr.) 39; Caledonian Associated Properties Limited v East Kilbride Development Corporation 1985 49 P&CR 410; British Steel plc v Kaye 1991 SLT (Lands Tr.) 7; and East Kilbride Development Corporation v Norwich Union (LTS/LO/1993/34, 29 March 1995).

[12] Any material restriction in the use of leased subjects must, on an ordinary use of language, "relate to the land", and it was hard to understand why that should not be so here. If similar restrictions appearing in a feu charter or disposition would "relate to the land", there was no reason to treat clauses in a long lease on any different basis. Indeed contractual clauses in a lease were particularly susceptible to the Tribunal's jurisdiction, because they were bilateral stipulations whereby the tenant's interest was burdened and at the same time the landlord's interest was benefited. In a case such as the present, moreover, the benefit could properly be said to extend beyond the particular subjects of the lease, and to affect the amenity and proper enjoyment of the shopping centre as a whole. The appellant's primary argument was accordingly misconceived and should be rejected.

[13] As regards the wider argument which had emerged on the strength of the Inner House decision in Fraser, that had not really been focused before the Tribunal although the case had admittedly been cited and discussed. The respondent's position was that Fraser laid down no principle of general application, and that the Lord President's observations must be read as referable to the particular subject-matter of that case. It was not difficult to see why a restriction affecting the tenant's identity was held not to relate to the land in question, but the same could not be said of the use restrictions, of a familiar type, which were in issue here. Over and above that, it was important to recognise that, in the context of a 125-year lease, circumstances might radically change over time to such an extent that the Tribunal's jurisdiction under the 1970 and 2003 Acts was of real value and should not, without good reason, be denied or curtailed. The qualifying conditions were expressed in simple terms, and without any obvious anticipation of problems, and the court should be very slow to interfere with the Tribunal's considered explication of their own jurisdiction.

[14] In all the circumstances, the Tribunal had reached the correct conclusion and their decision should not be disturbed. No doubt difficult questions were liable to rise on the merits of the application, on which a proof before answer was to take place, but the appellant's preliminary points were without substance. Any difficulty in this case was, in other words, confined to the disputed merits of the application, and did not concern the gateway to the Tribunal's jurisdiction.

Discussion

[15] We have found the issues arising in this appeal to be interesting and difficult. On a broad view the statutory jurisdiction conferred on the Lands Tribunal for Scotland is, as Mr Connal maintained, simply stated and was evidently thought capable of having a wide and flexible application. Moreover, bearing in mind that cogent justification is required on the merits of any application for the discharge or variation of title conditions, and that a successful applicant may be ordered to pay compensation, it is no doubt desirable to keep the jurisdictional gateway as wide as possible so that cases which truly merit interference are not excluded on purely technical grounds. As against that, it is clear that the legislature did not intend all "title conditions" in registrable leases to be susceptible to the Tribunal's jurisdiction. Only conditions which "relate to the land" qualify, and some sensible content has to be given to that limiting phrase. Over and above that, obligations contained in agricultural and crofting tenancies are excluded by schedule 11 to the Act, and the same applies to obligations relating to any right to work minerals. Obligations to do with rent are also excluded by the definition in section 122(1)(d), and, in the context of a mutual contract with inter-dependent stipulations, it is perhaps hard to see why the Tribunal should be entitled to discharge or vary any counterpart for rent while the rent obligation itself must remain "off limits".

[16] As the parties acknowledge, this is not a field in which there is a great deal of judicial authority to rely on. To our mind none of the Tribunal decisions which were cited to us is of any real assistance because, for one reason or another, jurisdictional issues simply did not arise and received no overt consideration. On the other hand, Fraser was a case where the Inner House specifically addressed the jurisdictional threshold for the discharge or variation of leasehold conditions under the 1970 Act. In particular, the Lord President at p.133 (with whose opinion Lords Stott and Grieve concurred) identified from the scheme and terms of the statute two potential areas of limitation. One was the requirement that a given condition must "relate to the land", and the other was the need for an "obligation" to involve something in the nature of a burden on what could otherwise be regarded as an established right. Support for this latter limitation was found in the statutory juxtaposition of leasehold conditions with real burdens and servitudes, and on that footing the Tribunal was held to have no jurisdiction to interfere with a clause which, by excluding assignees without the landlord's consent, essentially defined the tenant's identity from the outset. There was no true "burden" or "obligation" there, just an important delimitation of the initial grant.

[17] The Tribunal in the present case do not appear to have applied their minds to this significant aspect of the Fraser decision. Their opinion contains no discussion of the court's observations to the effect that clauses essentially defining or delimiting a grant ab initio could not in themselves be discharged or varied; nor any consideration of whether the court in Fraser should properly be seen as having laid down a principle of general application, as opposed to merely reasons specific to the particular clause (prohibiting assignation) which was before them; nor indeed any consideration of whether all or any of the clauses which are in issue in this case fall to be construed as true "burdens" on the one hand, or, on the other, as essentially definitional of the initial grant. In short, as it seems to us, the Tribunal have gone too far, too fast, and on an inadequate foundation, in rejecting outright the appellant's challenge to their jurisdiction.

[18] In fairness to the Tribunal, it is not clear that all of the matters to which we refer were properly focused in the debate before them, and they also faced the difficulty of trying to characterise the disputed conditions in the lease without the assistance of evidence, or even agreed facts, as to (a) the matrix of circumstances surrounding the inception of the lease in question, and (b) the layout, occupancy, management and operation of the Paisley Centre of which the leased subjects form an essential and integral part. But the preliminary issue here is in our view of material importance, and should not be resolved without the fullest possible consideration of all relevant facts and of the applicable law. If Clause SEVENTH (1), (2), (6), (7) and (8) of the lease were to be discharged, would that leave behind a recognisable core or would the contract be stripped of its essential character? What effect would such discharge have on the structure and operation of the Paisley Centre?

[19] Having come to the view that the Tribunal's decision of 17 September 2010 is unsatisfactory and must be recalled, we consider that the proper course at this relatively early stage of proceedings would be to allow to parties a proof before answer on all aspects of their dispute including the threshold question whether the respondent can relevantly bring its application within the proper scope of the Tribunal's jurisdiction. In essence, as it seems to us, that latter issue is not truly one of jurisdiction or of strict competency. The jurisdiction of the Tribunal is spelled out in the statute, and it is clearly competent for the respondent, in presenting an application, to try to meet that jurisdictional threshold. To our mind the dispute truly concerns the relevancy of the respondent's efforts in that direction, and as already indicated we do not consider that the Tribunal had a sufficient basis for reaching a definitive conclusion on the materials before them. As it happens, the Tribunal went on to allow a proof before answer on the merits of the application, so for practical purposes the course which we now favour may not add greatly to the scope or duration of the proceedings. What is important, however, is that no conclusion should be reached on the preliminary issue without the fullest consideration of the Fraser decision and, in that context, a careful analysis of the whole terms and conditions of the lease to see how far the claims in issue may truly be said to fall within the ambit of sections 90 and 122 of the 2003 Act.

[20] With that in mind, we do not propose to say much more about the Fraser decision here. All aspects of that decision must be examined and understood on their own merits, and in the first instance we think that it must be for the Tribunal, rather than this court, to explicate the limits of their own jurisdiction in the circumstances of an individual case. Suffice it to say that the decision in Fraser is plainly of high authority, and that in our judgment it is at least arguable that the court there did seek to identify a principle of general application which was not exclusively referable to clauses concerning the identity of parties.

[21] For completeness, we should add that if the appellant's principal argument concerning the phrase "which relates to the land" had stood alone, we would have had rather greater difficulty in holding that there was any reason to interfere with the Tribunal's decision. Prima facie important restrictions on the use of leased property, conceived for the benefit of the landlord's interest in the proper operation of a major shopping centre, might be thought to qualify as "land obligations" or "title conditions" just as easily as the many similar restrictions which, in both dispositions and leases, have been held to do so in the past. Having said that, however, we do not regard this matter as entirely free from doubt, and where all other disputed issues between the parties are already going to a proof before answer it is in our view appropriate that a proof before answer should be allowed on this issue as well. Any evidence, or agreed facts, as to the true incidence of benefits and burdens within the Paisley Centre may well assist the Tribunal to come to a more fully informed decision than is currently possible.

Disposal

[22] For all of these reasons we shall sustain the appeal, recall the Tribunal's decision of 17 September 2010, and allow to the parties a proof before answer on all disputed issues including the question whether the present application can relevantly be brought within the proper scope of the Tribunal's jurisdiction. All questions of expenses will in the meantime be reserved.