Letter: Do phantom leases exist?
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The Scottish Law Commission has recently issued a discussion paper, dealing with a number of aspects of the law of leases, and especially the termination of commercial leases. The Scottish Law Commission deserve more thanks than they often get for the efforts which they put into trying to improve and tidy many aspects of Scots law.
One of the minor topics in the present discussion paper is that of “phantom leases”. Everybody agrees that you cannot let, eg. a shop, to yourself. What happens however when the sitting tenant buys the shop from the owner? For most people, this takes you back to the situation which you couldn’t have created in the first place, namely, being your own tenant, and therefore the lease must “evaporate” because an owner’s legal title is obviously superior to and more permanent than that of a tenant.
Although this looks obvious, and common sense, a practice has grown up at Registers of Scotland of pretending that the lease continues in existence in some way, as a “phantom”. In their discussion paper, the Scottish Law Commission suggest that there are legal authorities and theories why a “phantom” lease might legitimately exist. On analysis however, most of these involve situations where there are third party interests involved, or where some genuine distinction can be drawn between the owner of the land, and the owner of the tenancy.
It will be interesting to see how the Law Commission deals with this. Different sectors of the legal profession have differing views on the present, counter-intuitive, practice. All those who are interested are encouraged to give their views in to the Commission before the consultation closes on 14 September 2018.
Mike Blair
Partner
Gillespie Macandrew LLP
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