Property Law roundup
Welcome to the January issue of Anderson Strathern’s Property Law roundup
This month we comment on a case where a developer tried to pull out of a deal for a reason which had not been included in the original contract. We also include a briefing on the new RICS service charge code operating throughout the UK and we provide some other news items of interest to the property industry.
Case comment
Briefings
New service charge code of practice
Scottish Government Enterprise Areas
News update
Case comment
The Inner House has rejected an appeal by Bett Homes in which it argued that it was entitled to rescind a contract with EDC and refuse to pay the final instalment (£14 million plus index linked sums) due in a property purchase because EDC were unable to give “vacant possession” by the agreed entry date.
In May 2007, EDC, Bett (formerly Gladedale) and the University of Glasgow agreed the sale of 2 parcels of land in Bearsden. Part 1 of the agreement provided that EDC would purchase the St Andrews College site from Glasgow University. EDC intended to build the new Bearsden Academy there. Part 2 of the agreement provided that Bett would purchase the existing Bearsden Academy site for 3 phases of new housing. Bett would lease the site back to EDC and would obtain possession in 3 phases, timed to correspond with the dates for payment of the price in 3 instalments. Bett pulled out of the contract on 3 May 2009 on the basis that EDC failed to give vacant possession to phase 3. By the time this dispute arose, phase 1 had been built and phase 2 was partially constructed.
The dispute was (1) whether by specifying a date for vacant possession for phase 3 (3 May 2009), the parties intended that time should be of the essence and (2) whether failing to meet that obligation would, of itself, constitute a material breach of contract entitling Bett to walk away from the contract.
Was time “of the essence”?
The Part 1 agreement actually provided for a right to walk away if entry could not be given on time. However, the Part 2 agreement simply said that entry was an essential condition of the bargain. The Court described this omission as “highly significant”. In addition, the lease of the site back to EDC was drafted on the basis that EDC might remain in possession after the date of entry for phase 3.
The Court decided that the parties could have agreed a provision which made time of the essence for entry to phase 3. The complex and serious consequences which would follow if possession was not given suggested the parties had not considered that a failure to perform on time would be a ground for pulling out of the contract. The Court decided that a time of the essence provision must be expressly stated in a contract for the sale of property and it was not prepared to accept that this type of contractual provision could arise either by implication or presumption.
The Court also considered whether EDC had been in breach of contract for not giving vacant possession. Payment in exchange for vacant possession were mutual obligations of the parties. At no time did Bett tender performance. For this reason, the Court decided that Bett could not say that EDC were in breach when they had not tendered payment first.
EDC won the day.
Fiona Stephen, partner in Property Litigation at Anderson Strathern comments:-
“What you normally get when you hand over your payment for a land purchase is the right to possess that land from the time the seller gets his money. It goes without saying that any complicated contract for a land purchase, where different dates of entry for different phases and staged payments apply, should set out what is to happen at the various stages in clear terms. Who is to do what and in what timeframe and what the consequences will be for not keeping to those terms are best put out of the realms of personal speculation.
What maybe less well known to many working in property development is that Scottish courts in general will be reluctant to read terms into contracts to make what has transpired to be a bad deal a good one. In other words, you cannot leave the importance of the timing of entry dates with vacant possession to the mercy of the common law and the courts. Scots contract law will not consider time to be of the essence for an entry date unless the contract actually says so.”
Case referred to: East Dunbartonshire Council v Bett Homes Ltd, [2012] CSIH 1. The full text of the decision is available on the Scottish Court Service website, accessible here.
Briefings
New service charge code of practice for the UK
Landlords and tenants in commercial properties should be aware that the RICS guidance on the best way to deal with service charges has changed: the revised Service Charge Code (Second Edition) came into force on 1 October 2011. The new code applies to the whole of the UK and replaces the previous (2007) edition, which had separate versions for England & Wales and Scotland.
The updated code aims to improve relations between commercial property owners and their tenants when it comes to service charges by setting out a framework of best practice for owners and management surveyors to follow.
Content of the new code
The main tenets of the code are “communication, transparency and timeliness.”
The code has 4 overarching aims:
- to improve general standards and promote best practice, uniformity, fairness and transparency in the management and administration of services charges in commercial property;
- to ensure timely issue of budgets and year end certificates;
- to reduce the causes of disputes and to give guidance on resolving disputes where these do occur; and
- to provide guidance to solicitors, their clients (be they owners or occupiers) and managers of service charges in the negotiation, drafting, interpretation and operation of leases in accordance with best practice.
The updated guidance also requires occupiers to be proactive in their communication with managers and investors, and issues around sustainability are also addressed for the first time.
The code is available on the RICS website accessible here.
If you have any questions on the service charge code or other aspects of commercial leasing, our team will be happy to help. Contact Dawn Anderson, senior associate in our Commercial Real Estate Department.
Scottish Government Enterprise Areas
On 17 January, the Scottish Government announced that four enterprise areas are to be created as part of its economic strategy for growth. In contrast to the English Enterprise Zones (which are based around geographical areas), the Scottish Government has taken a sectoral approach by basing the enterprise areas around growing industries – life sciences, renewables, creative industries and manufacturing. The hope is that by focusing on key growth sectors, in specific geographical areas, the process of creating jobs and centres of industry will be accelerated. The Scottish Government will agree specific incentives to be offered to encourage private investment at each of the sites.
The details are yet to be finalised but incentives look likely to include reduced business rates for at least some of the sites. The government has also agreed a planning protocol with COSLA to encourage key parties, including developers, local authorities, the Scottish Government and its agencies, to work together in a streamlined planning process.
Responses to the announcement have been mixed, with most observers waiting to see the detail of the plans before passing judgement. The main benefits are likely to be to manufacturers and employers rather than developers or investors.
The government hopes to have the areas operational from April.
Further details on the enterprise areas are given below:
Renewables Enterprise Areas: North and East
There are two renewables enterprise areas, to cover the north and the east of Scotland. The sites have all been identified in the national Renewables Infrastructure Plan.
- Low Carbon / Renewables North: Marine sites in Hatston (Orkney); Arnish (Western Isles); Nigg (Highland); Scrabster (Highland) and Lyness (Orkney).
- Low Carbon / Renewables East: Dundee Port and Port of Leith
Life Sciences Enterprise Area
- The area covers five sites in healthcare and life sciences, including three co-located sites in Irvine, a 10 hectare site in Forres (Moray), Inverness Campus (Highland), the Bioquarter in Edinburgh and Biocampus in Midlothian.
General Manufacturing and Growth Sectors Enterprise Area
- Covers two sites: Creative Clyde (Glasgow) a 14 hectare site based at Pacific Quay offering opportunities for creative industries; and Prestwick International (S Ayrshire), a centre for the Scottish aerospace industry.
The detail of the announcement is available on the Scottish Government website, accessible here.
News update
The Long Leases (Scotland) Bill was introduced to the Scottish Parliament on 12 January 2012. It is based on a draft Bill produced by the Scottish Law Commission as part of their property law reform programme. The Bill converts ultra-long leases (those granted for more than 175 years, with over 100 years still left to run) into ownership, unless the tenant decides to opt out. The Bill was introduced to parliament last year, in the previous parliamentary session, but ran out of time before parliament was dissolved for the Scottish Government elections.
The Rural Affairs, Climate Change and Environment Committee was designated as the lead committee for scrutiny of the Bill's general principles and has issued a call for evidence which will close on Friday 3 February.
As the committee expects to start taking evidence on 8 February, there is a very tight deadline for responses. The committee is particularly interested in hearing views on the changes to the Bill from the previous Bill and how they relate to the recommendations of the previous Justice Committee’s Stage 1 report (accessible here).
Further information, including the Bill and Scottish Government Policy Memorandum and Explanatory Notes, can be found on the Parliament's website, accessible here.
Inquiry into the Scottish Government’s Renewable Energy Targets
The Scottish Parliament’s Economy, Energy and Tourism Committee has announced a call for evidence into the achievability of the Scottish Government’s renewable energy targets.
The committee will also look at the technological, infrastructure and financial challenges of meeting the targets contained in the Scottish Government’s 2020 Routemap for Renewable Energy.
Key questions to be considered during the inquiry will include:
- is the technology to the meet the targets available and affordable?
- are our universities and research institutes fully geared up to the need for technological development?
- how can national priorities be reconciled with local interests?
- are we confident that the necessary infrastructure can be developed and financed so that Scotland can export any excess electricity generation to the rest of the UK?
- what will the impact be on consumers’ bills?
- will sufficient funds be available to allow investment in both the installation and development of relevant technologies?
- will Scotland have sufficient home-grown skills to attract inward investment?
- are the reforms of the energy markets and subsidy regimes at both UK and EU level sufficient to meet the challenge of the Scottish Government’s renewable targets?
Further details are available on the committee’s webpages, accessible here.
This bulletin is for general information only and does not constitute legal, investment or other professional advice. Please contact us should you require advice on any particular legal issue. Anderson Strathern LLP accepts no responsibility for any loss that may arise if reliance is placed on any information or opinions expressed in this bulletin.
