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Justice Committee 08 February 2011

08 Feb 2011 · S3 · Justice Committee

Item of business

Long Leases (Scotland) Bill: Stage 1

Dale Strachan (Brodies LLP) Watch on SPTV

I am happy to do so.I am a commercial property lawyer. The bill has ambitions to scope matters relating to residential leases and other forms of lease other than commercial property leases. I will confine my comments to commercial properties, if I may, as I have experience in that area.The issues that are raised are extremely interesting, and it is intriguing to see how they have been approached. The background is that the structuring of investment leases was uncontrolled in all substantive respects until the restriction on lease terms that was introduced in 2000. Before then, the beauty of commercial leases in Scotland was that they were largely treated as contracts and were enforceable as such. Parties were therefore free to make such contractual arrangements as they chose.Although this is about the law of property, it is truly also about the law of finance. The financing of new structures that have substantially contributed to the reconstruction of the United Kingdom in the past 50 years has involved the need for the certainty of returns and outcomes that financiers expect when they invest in property. I am really talking about larger-scale urban developments for which variable rentals come into play. There was, in effect, a clean sheet of paper to negotiate the deal that the parties wanted when the reconstruction of city centres with shopping centres and the like was being considered. Like any party, they all came with their own commercial requirements. Perhaps in the heyday of those structures, the local authorities tended to control the land in the city centre that was available for redevelopment, although private parties also did so, and they would have their own reasons for structuring a lease in the way that they wished. They may not have wished to receive full capital receipts in one year; they may have wished to spread the income receipts. I believe that that approach has implications for local authority financing, but taking it was open to them through the leasehold mechanism. The leasehold mechanism in Scotland is delightful because it is so flexible. Unlike some of its counterparts elsewhere in the UK, it is a very flexible vehicle for structuring deals.No two deals are the same, which may be frustrating. Two straightforward sales are very much like each other, but two leases are rarely like each other. I have experience of many different structures for long leases, and will give an example of the sort that members are addressing. Leases in which the rental receipts from occupational tenants are shared through a hierarchy of leasing structures are not at all uncommon. There may be only one head lease or there may be more, and financing leases may be interposed. They have been normal, and they exist in a number of places. I have not carried out any form of audit of all the leases in Scotland, but others may have done, in so far as that is possible.

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Justice Committee 08 February 2011

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