10 February 2023
Last week, the Lands Tribunal for Scotland issued a decision on the validity of a ‘real burden’ over land. The decision will be particularly relevant to those involved in buying and selling development land.
The background - A real burden is a condition of ownership which continues to affect the land even after it has been sold. Here, Lidl had built a supermarket at Castle Street, Dumbarton, and then sold the unused part of its plot to a developer. In the disposition deed, Lidl sought to impose a real burden imposing a use restriction, which was in the following terms:
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"So long as the granter of this Disposition (or another member of the same group of companies) is either a proprietor of or occupies the whole or part of the Retained Property, no part of the Conveyed Property shall be occupied by either (a) any of Aldi, Farmfoods, Iceland, Home Bargains, Tesco, Asda, Sainsbury and/or Morrisons or (b) any operator whose convenience (food) offer accounts for 30% or more of the sales areas of their property on the Conveyed Property."
The application - Three months after the purchase completed, the new owner applied to the Lands Tribunal for Scotland to have the burden declared invalid, on three grounds: (i) it was an unreasonable restraint of trade; (ii) it contravened the ‘four corners rule’; and (iii) it contravened the ‘praedial rule’. The new owner was successful before the Tribunal on point (iii). However, the Tribunal was more sympathetic with Lidl’s position on the other two grounds.
Restraint of trade – The Title Conditions (Scotland) Act 2003 provides that a real burden must not be contrary to public policy. It gives the example of a burden which is an unreasonable restraint of trade. Those who have dealt with restrictive covenants imposed on departing employees and non-compete clauses imposed on the sale of businesses will be familiar with the concept. In this case, the restraint of trade arguments never reached an advanced stage, because of the new owner’s success on the other ground. However, but for that, Lidl could have been optimistic on this ground. The Tribunal observed that Lidl was trying to achieve ‘a non-compete condition of a kind which is common in such circumstances’.
It is certainly not the case that all restraints of trade will be inherently problematic. For example, when burdens imposing restraints of trade were more fully explored in the Hill of Rubislaw case (2013), the Inner House of the Court of Session was willing to uphold a restriction on the amount of office space that could be built. According to the Court, the burden was reasonable in the context of the agreement between the original parties, because it had been commercially negotiated with legal advice and was part of an overall package which granted additional access rights to the restrained party; and it was not contrary to the public interest, because the agreement facilitated additional office development in the wider Aberdeen area (despite restricting the amount that could be developed on the site in question). The Inner House waved away an attempt to introduce novel arguments based on European competition law.
The ‘four corners rule’ – This is the rule that the content of a real burden has to be knowable from the deed itself, without looking beyond it. Here, the new owners criticised the text as being too vague; leg (a) made references to be supermarket brand names and an undefined ‘group of companies’, rather than corporate names. The Tribunal, however, said that it would have sided with Lidl on this issue: the alternative of specifying the names of the corporate entities behind the brands would be too easy to get around by the creation of new companies; and, if a party was asserting membership of the Lidl group later, it could offer to prove that fact, if it were challenged. And, even if leg (a) of the text were to be struck down, leg (b) would survive. It referred to operators using 30% or more of their sales area for food, which was clear enough.
The ‘praedial rule’ – This rule - that a real burden must relate to the land, rather than be a personal obligation between the parties - is where Lidl came unstuck. The Tribunal looked back to the Hill of Rubislaw case mentioned above to identify the following principles:
(i) a real burden had to confer benefit on the owners, tenants or occupiers of the benefited property from time to time;
(ii) that was the case whoever the owners, tenants or occupiers from time to time might be; and
(iii) the benefit had to enhance, or at least protect, the value of the property.
Lidl’s problem was that the restriction was so inextricably linked to the Lidl group that it failed to meet these requirements. The text made clear that the restriction only remained in effect whilst Lidl, or one of its group companies, was the owner or occupier of the supermarket site. It could not enhance or protect the value of that site for any third party who might buy it. The Tribunal contrasted this with a similar restriction in a previous Lands Tribunal case, BNP Paribas v Safeway (2020), which tied the persistence of the burden to the use of the ‘Safeway Site’ for the sale of food, not to Safeway itself.
The implications
It remains to be seen whether there will be any appeal by Lidl. These cases all turn to some extent on their own facts. What the case reminds us, though, is that care must be taken to comply with the Hill of Rubislaw principles when drafting use restrictions.
Will acted for the pursuer in the Hill of Rubislaw case.
If you have any queries on this matter, please contact:
Will Cole, Partner: wco@bto.co.uk / 0131 222 2947