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Property Litigation & the PLA
JANUARY 2013
Property Litigation Scotland
Looking further at the issues surrounding Property Litigation, we speak to Gillian Craig, a partner within the Commercial Dispute Resolution Group of MacRoberts LLP. MacRoberts is one of Scotland’s pre-eminent law firms and clients include UK and international businesses, public sector organisations and private individuals.
What have been the key trends with regards to property litigation in 2012?
Throughout 2012 we worked on a number of insolvency-related matters. In addition, litigations surrounding whether a lease has been properly brought to an end have become commonplace. Landlords are seeking to hold tenants to existing leases, rather than face the potentially bleak prospect of trying to find a new tenant. This, coupled with cases such as Mannai (a term which relates to the requirements for a notice to be properly served) render litigation in this area a popular choice.
Dilapidation disputes have, in my experience, been very much on the increase. The reasons for this include the fact that a number of long leases entered into in the eighties have now expired which leads to litigation surrounding the relatively complex wording used for repairing obligations. Most dilapidations claims will result in the landlord being paid something, be it by court award or extra-judicial settlement as they are an attractive option.
We are now seeing more and more negligence actions against firms of surveyors who were overly generous in their mortgage valuations at the peak of the property market; such claims are now at risk of timebar and as such, actions are being raised in 2012 in order to protect the lender's position.
Has litigation increased over the last 4-5 years in your experience? If so, why do you think this is?
Litigation in general has not increased over the last 4-5 years. Scotland's Chief Statistician has just published Civil Law Statistics in Scotland 2011-12, which actually shows a 13% drop in cases raised in the Court of Session and Sheriff Courts. Prior years showed a similar drop in the number of cases. The reasons for this are varied:
1. Litigation is perceived as expensive and drawn out. In many respects, this is indeed true as cases can get "bogged down" in cumbersome court procedures, particularly if a commercial court is not available. If a commercial court is available, this argument is generally un-founded however in the current climate many aggrieved parties simply cannot afford the costs involved. As such, Scottish solicitors require to be increasingly creative with fee
agreements. The issue of costs is currently being considered by The Taylor Review. Commissioned by the Scottish Parliament, it will review the costs and funding of litigation in Scotland.
2. The recovery of costs is limited in Scotland, unlike in England, and the legal expense insurance market north of the border is not developed.
3. Parties are increasingly aware of the benefits of ADR ( Alternative Dispute Resolution) particularly mediation.
4. A large part of property litigation is concerned with leases, and particularly recovery of rent arrears. More often than not, commercial leases will have a consent to registration for preservation and execution which means that court action is not necessary. The landlord can proceed with "summary diligence" i.e. enforce payment of rent by using a (registered) lease in the same way as a court decree.
How does insolvency within the property sector lead to litigation?
There are a number of ways, including:
(a) Landlords seeking to irritate a lease by virtue of the tenant being placed in liquidation or some other insolvency process. This throws up a number of issues e.g. whether or not the moratorium on any legal processes (in administration) prevents any action being taken; obtaining the consent of the insolvency practitioner/leave of the court to proceed; dealing with insolvency practitioners, questions as regards how post-appointment rent ranks in the liquidation (if the lease is not irritated) and the consequences of irritancy on other aspects of the lease e.g. any lease end repairing obligations.
(b) The often over-looked landlord's hypothec. Hypothec is an automatic fixed security a landlord has over the tenant's stock within the let premises in relation to outstanding rent, as now stated in s208 of the Bankruptcy and Diligence etc (Scotland) Act 2007.
(c) Enforcing keep open obligations (and whether or not it is equitable to do so if the tenant is struggling financially).
(d) Enforcing and calling up standard securities against errant debtors remains a constant source of business.
(e) Enforcing missives against purchasers who are unwilling or unable to complete has until recently resulted in a steady stream of litigations but, as stated above, such actions appear to be in decline.
can you tell me about any recent cases you have worked on that were particularly interesting?
I have recently been involved in two dilapidations cases which threw up the same question, namely whether the broader commercial approach to contract interpretation (Investor's Compensation Scheme Ltd v West Bromwich Building Society and others) applies to repairing obligations under a lease. These clauses have traditionally been subject to a stricter approach to interpretation, being of a class of clause which restricts or excludes the term otherwise implied by common law. In Scotland, the landlord is liable for repair in urban lets. Clearly, landlords are keen to see the tenant's repairing obligations interpreted in as wide a fashion as possible. Decisions are awaited in both, but the trend of case law appears to favour the continued use of a stricter approach to interpretation; with cases such as Investor's Compensation Scheme Ltd not having so far been referred to in decided dilapidations cases in Scotland. LM
contact details:
Gillian craig Partner
MacRoberts LLP
Email: gillian.craig@macroberts.com tel: 0141 303 1100