The Long Leases (Scotland) Act 2012 will come into force in Scotland on 28 November 2015, a tenant's interest under a qualifying lease will automatically convert to outright ownership of the property and the landlord's title to the property will be extinguished. Essentially this will mean the end of long leases. It is estimated there are around 9000 long leases that will be eligible to convert.

Qualifying Leases

To qualify, a lease must be:

• Registered/recorded
• Originally have been granted for a term of more than 15 years
• Have more than 175 years of the term left to run if non-residential; 100 years left if residential
• Have an annual rent of £100 or less
• Not be a lease of a harbour, where there is a harbour authority
• Not be a lease of minerals
• Not be a lease granted for the sole purpose of installing and maintaining pipes/cables

Exempt Leases

The Act will not force tenants out, indeed they stand to benefit greatly from the Act. Tenants can choose to opt out of the legislation, but landlords cannot. Landlords, by contrast, will need to register an agreement with the tenant for their long lease to be exempt. The onus will be on landlords to ensure any long leases are exempt, or that any overdue rent is recovered before 28/11/2015, as recovery after that will not be possible.

Compensation for Landlords

Compensation may be payable by the tenants for loss of rent and other rights (set out in part 4 of the Act). The explanatory notes accompanying the Act state that the "compensation is designed to deliver the same economic benefit to the landlord as the ongoing income from rent paid under the ultra-long lease being converted to ownership. Additional payments may also be due." As a result landlords may lose out in capital, but should be no worse off for income. It is important to point out that landlords only have two years in which to register a claim for compensation.

Impact on Lenders

For lenders, any standard security over the tenant's interest in a long lease will remain intact. This, however, will not be the case for any standard securities given by the landlord against the property. Lenders may be able to recover sums due early as per their security agreements, but will not be able to call up against the security after the relevant date in 2015. Repossession would no longer be an option.

Lease Conditions to Title Conditions

The law has to protect neighbouring properties which benefitted from existing lease conditions. Where necessary, certain lease conditions will automatically convert into title conditions affecting the tenant's new interest in the property for the benefit of neighbouring properties. Other conditions may convert to title conditions on registration of a notice by the person/group entitled to enforce the condition.

Action Required By Landlords

Although the landlord's right of ownership of the property will be extinguished, a landlord who ceases to be the owner may retain certain limited rights. Some of these are preserved by the Act without any requirement for action by the landlord. Others will only be preserved by the service, and in some cases registration, of a notice. These include:-

• The conversion of certain leasehold conditions into burdens on the title to the property, so that they remain enforceable. A notice must be served and registered prior to 28 November 2015.
• The right to continue to exercise access rights and other rights which resemble servitudes. Such rights are automatically preserved with no action required.
• The right to continue to exercise sporting rights. A notice must be served and registered before 28 November 2015.
• The right to claim compensation from the tenant for loss of rent. A notice must be served on the tenant after 28 November 2015 but prior to 28 November 2017.
• The right to claim an additional payment from the tenant in consideration of the loss of certain other rights, such as development value. A notice must be served on the tenant after 28 November 2015 but prior to 28 November 2017.

For more information or advice on the end of long leases, feel free to contact our experienced property team.